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TMI Blog2013 (9) TMI 193X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure in repairs and maintenance or vehicle maintenance on ad hoc basis. If the Assessing Officer is not satisfied either about the maintenance of vouchers or verifiable nature of the vouchers, he should identify them and disallow the entire amount under section 37(1), rather than resorting to ad hoc disallowance. The reasons for disallowing are very general in nature without any specific mistakes being pointed out by the Assessing Officer. Considering that the assessee is an agro-based chemical company and also a public limited company the ad-hoc disallowance is not sustainable. Disallowance of loss due to fire attributable to building and machinery treating the same to be capital in nature - The company made its own assessment of damages requiring repairs/replacement expenses and lodged the claim and debited a sum to the insurance company of Rs. 1.51 crores. The insurance company appointed the surveyor who after detailed assessment restricted the claim to Rs. 1,26,35,274. After discussions, the assessee agreed for the claim at the reduced amount. Thereafter the insurance company further reduced the amount for various technical reasons and paid only an amount of Rs. 1,04,66,9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not furnish any details of utilisation/subsequent sales thereof. When the assessee submits that the packing material cannot be used, how all the details of the utilisation can be furnished is not explained by the Commissioner of Income-tax (Appeals). The only way for subsequent sales which can be in the circumstances is by disposing of the packing material at scrap value. In that case, the assessee would certainly account for scrap sale but the assessee cannot sell the packing material as such and so the subsequent sales also cannot be furnished in the absence of its utilisation as the packing material in the production of its products – Reliance has also been placed upon the judgment in the case of Emersons Process Management India (P.) Ltd. vs. Additional Commissioner of Income-tax, Range 3(1), Mumbai,[ 2011 (8) TMI 427 - ITAT MUMBAI] - Since the assessee has not used the above packing material and has to be discarded off by way of destruction or sale as scraps, the assessee has rightly reduced the value – Decided in favor of Assessee. Disallowance of depreciation on software purchase - On the reason that purchase of software is essentially purchase of copyright which att ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own by the jurisdictional High Court, the amounts paid within the grace period should have been allowed. Further the assessee also took recourse to the hon'ble Supreme Court judgment in the case of CIT v. Alom Extrusions Ltd. [2009] 319 ITR 306 (SC) for the proposition that since the amounts were paid within the financial year/before the filing of return itself, the amounts should be allowed. The learned Commissioner of Income-tax (Appeals) however, confirmed the same holding that there is no substance in the contentions. 3.1 After considering the rival submissions, we agree with the assessee's contentions. As seen from the chart prepared in the Assessing Officer's order, most of the payments were paid within the grace period itself or within the year itself. Even otherwise, the amounts were paid before filing the return of income in any case. Therefore, following the judicial principles on the issue established by the hon'ble Supreme Court in the case of Alom Extrusions Ltd. (supra) and also the co-ordinate Bench decision in the cases of ACIT V.Ranbaxy Laboratories Ltd. 7 ITR (Trib.) 161(Del.)and CIT v AimilLtd. 321 ITR 508(Del) of the hon'ble Delhi High Court decision, we direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Taxation) v. Oman International Bank (313 ITR 128)(Bom). The learned Commissioner of Income-tax (Appeals) confirmed the same on the reason that the assessee did not furnish any details. Learned counsel referred to the paper book (PB page 133) and replies given to the Commissioner of Income-tax (Appeals) to submit that all the details have been furnished. Considering the same and also the fact that the amounts have been written off in the books of account, the principles laid down by the hon'ble Supreme Court in the case of TRF Ltd vs. CIT (2010) 323 ITR 397 will apply. Accordingly Assessing Officer is directed to allow the amount. The ground is allowed. 6. Ground No. 4 pertains to the disallowance of depreciation on refinery of Rs. 16,96,774. The Assessing Officer noticed that the auditor in Schedule-II para 4 noted that the refinery of edible oil has remained discontinued during the year and management has not planned any refinery activity. After seeking explanation from the assessee, the Assessing Officer concluded that the use of refinery for the purpose of business has been discontinued from the assessment year 2002-03 onwards and the assessee has no intention to utilise th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd debited a sum to the insurance company of Rs. 1.51 crores. The insurance company appointed the surveyor who after detailed assessment restricted the claim to Rs. 1,26,35,274. After discussions, the assessee agreed for the claim at the reduced amount. Thereafter the insurance company further reduced the amount for various technical reasons and paid only an amount of Rs. 1,04,66,973. Therefore, the amount of difference between the agreed claim which was debited to the insurance company and received claim was treated as loss due to fire. The Assessing Officer treated the above loss as capital expenditure pertaining to the fixed assets, building and machinery and therefore, capital in nature. The learned Commissioner of Income-tax (Appeals) approved the same. 7.1 It was the contention of learned counsel that the loss pertaining to the factory building and plant and machinery is nothing but repairs allowable as per the provisions of sections 30 and 31 of the Income-tax Act. It was submitted that the assessee took the reinstatement policy whereby the insurance company reimbursed the expenditure incurred for restoring the assets to the original shape. Therefore, the entire expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the insurer's account, then short receipt from the insurance company gives rise to revenue loss. The Assessing Officer is directed to allow the same after due verification as revenue expenditure. The ground is treated as allowed for statistical purposes. 8. Ground No. 6 pertain to the claim for devaluation of closing stock to an extent of Rs. 14,25,705. The Assessing Officer noticed that the assessee has devalued its closing stock to Re. 1 as on March 31, 2005. The assessee explained that the company has brought forward certain slow and non-moving items in its inventory valued at Rs. 14,25,706 as on April 1, 2004 as the same remained unsold for the whole year, its written down value was reduced to Re. 1 as on March 31, 2005. The Assessing Officer did not agree with the assessee's contentions and held that these are contrary to the provisions of section 145A and accounting standards for valuing the inventory. Before the Commissioner of Income-tax (Appeals) the assessee furnished the details of various packing materials, quantity, rate and value as available in the books and submitted that most of the material pertains to packing material in which batch numbers, price, etc., we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this, we are of the opinion that the Assessing Officer and the Commissioner of Income-tax (Appeals) wrongly considered the issue in disallowing the amount. The assessee relied on the decision of the co-ordinate Bench in the case of Emersons Process Management India (P.) Ltd. vs. Additional Commissioner of Income-tax, Range 3(1), Mumbai, 47 SOT 157 (Mum) UROand in the case of Bharat Heavy Electricals Ltd. v. Dy. CIT [2006] 9 SOT 189 (Delhi) (URO). The above principles were accepted in the abovereferred co-ordinate Bench decisions and items of stock which have become obsolete or useless were allowed to be valued at a lesser price and the difference was allowed as a deduction. Since the assessee has not used the above packing material and has to be discarded off by way of destruction or sale as scraps, the assessee has rightly reduced the value ; therefore, the Assessing Officer is directed to allow the amount. Ground is allowed. 9. In the result, the appeal is allowed. I.T.A. No. 8138/Mum/2011-Assessment year 2006-07. 10. The assessee in ground No. 1 is contesting the following disallowances : (i) Telephone expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peals). 12.1 We agree with the contentions of the assessee. The assessee being a public limited company and has maintained books of account and audited, ad hoc disallowance per se does not arise. Moreover element of personal nature in a company's case does not arise. The Assessing Officer should have considered whether the expenditure is business or non-business expenditure but there cannot be any disallowance of personal expenditure like in the cases of proprietary concerns or firms. Not only that the reasons for disallowance also seems to be very purile, without any basis. For the reasons stated in ground No. 2 in the appeal I.T.A. No. 8136/Mum/2011, assessment year 2005-06 above, here also, we agree with the assessee's contentions and direct the Assessing Officer to allow the amounts as claimed. The ground is considered allowed. 13. Ground No. 2 is with reference to the expenditure on fire. This is a continuation claim with reference to the fire accident occurred in the assessment year 2004-05. Substantial discussion was made on this same issue in the assessment year 2005-06 at ground No. 5 in I.T.A. No. 8136/Mum/ 2011. In principle, the amount is allowable as revenue loss. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Assessing Officer is confirmed. 2.3 Similarly, in respect of repairs and maintenance on account of machines/electrical installation/building as stated aforesaid, the Assessing Officer stated that the appellant could not produce the supporting evidence for large part of such expenses. The same were claimed on basis of self serving vouchers. Several missing vouchers while several others bear incomplete narrations, etc. The Assessing Officer disallowed 20 per cent. of these expenses. I agree with the findings of the Assessing Officer. Since expenses are not properly vouched/verifiable ; the appellant has failed to discharge its onus. The disallowance made by the Assessing Officer is upheld. 2.4 In respect of disallowance of garden expenses-Rs. 2,05,765. The appellant stated that these expenses were incurred for maintaining plants in office and factory and proper environment and ecosystem. 2.5 Since these expenses are related to the proper upkeep and maintenance of office and the factory/ecosystem-the same are allowable under section 37(1) as held in the case of Joint CIT v. I.T.C. Ltd. [2008] 299 ITR (AT) 341 (Kol.)[SB]. The disallowance on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and further purchase of software does not involve any purchase of copyright and no TDS is required, confirmed the said action of the Assessing Officer on the reason that the purchase of software amounts to acquisition of intangible assets therefore, its royalty and so the amount is disallowable. 21. It was contended that (i) the assessee has not debited any amount to its profit and loss account as an expenditure for software purchase, but has capitalised the said amount to its plant and machinery (component) block and thus the question of any disallowance under section 40(a)(ia) does not arise, (ii) what has not been claimed cannot be disallowed in the first place, and (iii) the amendments made under section 9(1)(vi) by insertion of Explanations 4 to 6 thereto with retrospective effect-redefining "royalty" is not applicable to the case of the assessee. For this proposition, reliance is placed on a recent decision dated 07.09.2012) of Hon'ble Mumbai Bench of ITAT in the case of Sonata Software. 20.1. The learned Departmental representative however, supported the orders of the Assessing Officer and the Commissioner of Income-tax (Appeals). 20.2 We were surprised about the act ..... X X X X Extracts X X X X X X X X Extracts X X X X
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