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TMI Blog2008 (7) TMI 606X X X X Extracts X X X X X X X X Extracts X X X X ..... because same was not covered under section 41(1) of the Income-tax Act. The Assessing Officer rejected assessee s claim. The CIT(A) confirmed the order of the Assessing Officer. The ld. Authorised Representative of the assessee submitted that the issue is covered in favour of the assessee by the following judgments :- 1. Mahindra Mahindra Ltd. v. CIT [2003] 261 ITR 501 (Bom.), 2. CIT v. Chetan Chemicals (P.) Ltd. [2004] 267 ITR 770 (Guj.), 3. CIT v. Sugauli Sugar Works (P.) Ltd. [1999] 236 ITR 518 (SC). 4. We have heard the learned representatives of the parties, record perused and gone through the decisions cited. The assessee claimed deduction of Rs. 1,15,00,000 in respect of amount written back in CRM Nasrapur Division in the statement of total income along with note No. 3 reads as under: "During the year company has written back an amount of Rs. 1,15,00,000 in C.R.M. Nasrapur. This is the erstwhile Nasrapur Metals Ltd. which was amalgamated with Jindal Iron Steel Co. Ltd. during the assessment year 1993-94. This amount of Rs. 1,15,00,000 represented an amount due by the erstwhile Nasrapur Metals Ltd. for purchase of machinery. Since this amount repres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer is perfectly justified in coming to the conclusion that the amount in question is taxable in view of the decision of the Supreme Court in the case of CIT v. Sundaram Iyengar Sons Ltd. 222 ITR 244. The following extract from the said decision of the Supreme Court in the case of Sundaram Iyengar Sons Ltd., ( supra ) will be quite relevant: Although the amount received originally were not of income nature, the amount remained with the assessee for a long period unclaimed by the trade parties. By lapse of time, the claim of the deposit became time barred and the amount attained a totally different quality and it became a definite trade surplus. . . In other words, the principle appears to be that if the amount is received in course of the trade transactions, even though it is not taxable in the year of receipt as being of revenue character, the amount changes its character when the amount becomes the assessee s own money because of limitation or by any other statutory or contractual right. When such thing happens, common sense demands that the amount should be treated as income of the assessee. 42. Based on the above, it emerges that in the instant cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l + liabilities = Assets. It is called the fundamental accounting equation because every transaction that takes place in a business unit influence its accounting equation in one way or other. Suppose P starts a business with Rs. 50,000 cash. The accounting equation will be as follows: Capital + Liabilities = Assets P s capital 50,000 Cash 50,000 Suppose, P then buys furniture from F.F.Co. on credit for Rs. 2,000. Now, the accounting equation will be as follows: Capital + Liabilities = Assets P s capital + F.F.Co. Cash + furniture 50,000 + 2000 50,000 + 2000 Further suppose, P buys for cash goods-in-trade for Rs. 30,000. The new accounting equation will be as follows: Capital + Liabilities = Assets P s capital + F.F.Co. Cash + furniture + Goods-in-trade 50,000 + 2000 50,000 + 2,000 + 30,000 Finally, suppose, P sells for cash goods costing Rs. 6,000 for Rs. 7,000 earning a profit of Rs. 1,000, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act it has resulted in profit or loss to the assessee. If entries are made by an assessee in his books of account in conformity with the proper accountancy principles after considering true nature of the transaction, in such cases book result are acceptable. In support of above view, we would like to refer following observation of the Apex Court which were noted in the case of T.V. Sundaram Iyengar Sons Ltd. ( supra ) : "The true accountancy view would, I think, demand that these sums should be treated as paid into a suspense account, and should so appear in the balance sheet. The surpluses should not be brought into the annual trading account as a receipt at the time they are received. Only time will show what their ultimate fate and character will be. After three years that fate is such, as to one class of surplus, that insofar as the suspense account has not been reduced by payments to clients, that part of it which is remaining becomes, by operation of law, a receipt of the company, and ought to be transferred from the suspense account and appear in the profit and loss account for that year as a receipt and profit. That is what it in fact is. In that year Jays become the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n foreign currency is utilised or intended to be utilised in the course of business or for a trading purpose or for effecting a transaction on revenue account, loss arising from depreciation in its value on account of alteration in the rate of exchange would be a trading loss, but if the amount is held as a capital asset, loss arising from depreciation would be a capital loss. 4.7 We shall refer to some of the cases decided by the courts to see how this principle, Accounting equation approach was understood and applied, which are as under: ( i )In the case of Punjab Distilling Industries Ltd. v. CIT [1959] 35 ITR 519 (SC), the assessee carried on business as a distiller of country liquor and sold the produce of its distillery to licenses wholesalers. Under a scheme devised by the Government, the distiller used to charge the wholesalers a price for the bottles in which the liquor was supplied at rates fixed by the Government, which the distiller was bound to repay when the bottles were returned. Additionally, the assessee took from the wholesalers certain further amounts described as security deposits without the Government s sanction and entirely as a condition imposed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith a case where the assessee was a dealer in machinery. The practice of the assessee-company was to take deposits from intending purchasers. The deposits were later adjusted towards purchase price of the machinery that was sold. The surplus deposits, if any, were generally refunded to the customers. Occasionally, the assessee was unable to refund some of the excess deposits for various reasons. Such excess deposits were written off in the books of the assessee by transferring them to the profit and loss account. It was held by the Division Bench of the Bombay High Court that having regard to the nature of the transaction, the receipts in question could not be considered as amounts held by the assessee for the benefit of anybody else. The deposits were in respect of a specific transaction of sale and were adjusted towards the purchase price of the machinery that was sold. It was more in the nature of a trade receipt, especially when the assessee brought such surplus deposits remaining in its hands to its profit and loss account. Therefore, the amount was taxable as trade receipt in the hands of the assessee. 4.8 Sometime the taxability of a receipt fixed with reference to its c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of capital nature at the point of time it was received, by efflux of time the money has become the assessee s own money. What remains after adjustment of the deposits has not been claimed by the customers. The claims of the customers have become barred by limitation. The assessee itself has treated the money as its own money and taken the amount to its profit and loss account. There is no explanation from the assessee why the surplus money was taken to its profit and loss account even if it was somebody else s money. In fact, as Atkinson J. pointed out that what the assessee did was the commonsense way of dealing with the amounts." [Emphasis supplied] 4.9 In the light of above discussions, if we consider the facts of the case under consideration which are that M/s. Nasrapur Metals Ltd. imported machinery in 1990-91. The purchase consideration was to pay in the form of shares of Nasrapur Metals Ltd. The said machinery was not of requisite quality and started to give trouble. Nasrapur Metal Ltd. stopped further allotment of shares to suppliers and application money of Rs. 1,15,00,000 credited to sundry creditors account. The said credit was taken over by the assessee in fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch transaction is not subject to tax under section 41(1). In fact the revenue s case is not under section 41(1). The case of revenue under section 28( iv ) which is supported by the judgment of jurisdictional High Court in the case of Protos Engineer Co. (P.) Ltd. ( supra ) where it has been held that excess commissions against suppliers etc. unclaimed balances received in earlier years credited to P L a/c in the year under consideration has close and direct nexus with business and definitely amounts to a benefit taxable under section 28( iv ). The revenue s case is also supported by the judgment of the Hon ble Supreme Court in the case of T.V. Sundaram Iyengar Sons Ltd. ( supra ). We therefore confirm the order of CIT(A). 5. The first ground raised in the appeal is that the ld. CIT(A) erred in not directing the Assessing Officer to exclude sales tax, job work charges, trial run, net sales etc. while computing deduction under section 80HHC of the Income-tax Act. 6. At the outset, the ld. Authorised Representative of the assessee submitted that the issue is covered in favour of the assessee by the following decisions:- 1. CIT v. Lakshmi Machine Works [2007] 290 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -I, is decided against the assessee. Similarly the ld. Authorised Representative of the assessee submitted that the deduction under section 80-I in respect of sale of import licence is also covered against the assessee by the judgment of Hon ble Apex Court in the case of CIT v. Sterling Foods [1999] 237 ITR 579 2 . In view of the above judgment of Hon ble Apex Court, the issue in respect of sale of import licence, is decided against the assessee. 11. The ld. Authorised Representative of the assessee submitted that sale of scrap, sundry balances written back and insurance claim are covered in favour of the assessee by the decision of ITAT in assessee s own case for assessment year 1991-92, 1992-93 vide ITA No. 2709 6727/Delhi/95 and assessment year 1993-94 vide ITA No 2659/Delhi/98 orders dated 29-11-2002 and 21-10-2005 respectively. It is also covered in favour of the assessee by the decision of ITAT Special Bench, Ahmedabad in the case of Nirma Industries Ltd. v. Asstt. CIT [2005] 95 ITD 199. Following the above decision of the ITAT the issue pertaining to sale of scrap, sundry balances written back and insurance claim are decided in favour of the assessee. 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial ingredient for the profit earning process of the assessee company. The Assessing Officer disallowed the claim of the assessee following the earlier order for assessment year 1994-95 and treated the said expenditure as capital expenditure. The ld. CIT(A) deleted the said addition following their earlier order for assessment year 1994-95. The ld. DR relied on the order of the Assessing Officer, whereas the ld. AR submitted that in assessment year 1994-95, the issue has been decided by ITAT in favour of the assessee vide ITA No. 2758/Delhi/98 order dated 23-11-1995. 17. After hearing the ld. Representatives of the parties we find that in assessment year 1994-95, the ITAT following the judgment of Hon ble Jurisdictional High Court in the case of Western India Vegetable Products Ltd. v. CIT [1954] 26 ITR 151 (Bom.) allowed the claim of the assessee. Since facts of the case under consideration are identical to the facts decided in the case by ITAT, we respectfully follow the above order of ITAT and in the light of that, order of ld. CIT(A) is confirmed. 18. The third ground is in respect of netting benefit of interest income for the purpose of calculation of deduction u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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