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TMI Blog2016 (2) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT(A) and thereafter COD refused permission to file appeal against the said appellate order. In AY 2006-07 also the assessee had written off ₹ 184. 07 lacs. In the regular assessment u/s. 143(3) for A. Y. 2006-07 the same AO after due consideration of the explanation and the CIT(A)'s order for AY 2004-05, had refrained from making any disallowance. In view of the facts and circumstances of the present case, We are of the view that the claim of assessee, writing off in its Profit & Loss Account, the value of obsolete stores and spares, is a genuine claim and CIT(A) has rightly allowed the same. - Decided in favour of assessee. Disallowance 14A read with Rule 8D - Held that:- We are of the view that the AO was unjustified in making the disallowance of ₹ 98.23 lacs merely by adopting an arithmetical formula prescribed in Rule 8D(2)(iii) of the Rules. We are of the view that disallowance u/s 14A of the Act can be made only if the facts of the case prove that at least some expenditure was actually incurred by the assessee for earning exempt income. If, however, the facts on record and the assessee's accounts for the relevant year establish that in fact no expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not allowing the deduction. We reverse the order of CIT(A) and allow the claim of deduction of write off of loose tools. - Decided in favour of assessee. - ITA No. 1692/Kol/2010, CO No. 19/Kol/2011 - - - Dated:- 5-11-2015 - Mahavir Singh, JM And M. Balaganesh, AM For the Appellant : Shri Sanjay Mukherjee, JCIT For the Respondent : Shri D S Damle, FCA ORDER Per Shri Mahavir Singh, JM This appeal of revenue and cross objection by assessee are arising out of order of CIT(A)-VI, Kolkata in Appeal No. 840/CIT(A)-VI/09-10/Cir-5/Kol dated 30.06.2010. Assessment was framed by ACIT, Circle-5, Kolkata u/s. 143(3) 115WE(3) of the Income-tax Act, 1961 (hereinafter referred to as the Act ) for AY 2007-08 vide order dated 04.12.2009. 2. First we take up ITA No. 1692/Kol/2010 (Revenue's appeal). The first issue in this appeal of revenue is against the order of CIT(A) deleting the disallowance made by AO of provisions for write off of spares at ₹ 10 lacs. For this, revenue has raised following ground no.1: 1. That Ld. CIT(A)-VI, Kolkata has erred in law as well as on facts of the case in deleting the addition on account of disallowance of provision for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, we find that the assessee regularly carries out physical inspection of materials, stores and ascertain the diminution in value of stores and also damaged and obsolete stock. It is also a fact that physical inspection is conduced both departmentally as also by external agencies. During the year under consideration M/s. Bandyopadhyay Associates, Cost Accountants, carried out the valuation of spares at Nagaon and Cachar Paper Mills and identified items of obsolete and damaged stores and spares and furnished report on valuation of stores and spares. Based on the valuation report that assessee written off ₹ 656.36 lacs in its profit and loss account for the year ended 31.03.2007. However, in respect of the very same items assessee had created provision in the earlier years to the extent of ₹ 646.36 lacs and therefore adjusting such provisions, the net additional sum of ₹ 10 lacs only was debited in the profit and loss account. We futher find that similar write off were also made by the assessee in the financial year 2003-04 and 2005-06. The disallowance made by the AO in AY 2004-05, was deleted by the CIT(A) and thereafter COD refused permission to file appeal aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance by invoking the provisions of section 14A of the Act read with Rule 8D of the Rules. We find that the AO has made addition of ₹ 98.23 lacs u/s 14A of the Act which is at 0.5% of ₹ 1,96,46,30,000 being investment in shares of its wholly owned subsidiary Hindustan Newsprints Ltd. (HNL) from whom assessee had received dividend of ₹ 907.94 lacs. The facts are that in 1970s the assessee had set up a newsprint mill in Kerala and after the Newsprint Division started manufacturing, Government of India decided to corporatise the Newsprint Paper Division and accordingly directed the assessee to convert the said Newsprint Paper Division into a wholly owned subsidiary under the name and style of Hindustan Newsprint Ltd. Since 1983-84 the said HNL is functioning as an independent corporate entity. After 1983 the assessee has not made fresh investments in the said subsidiary. The dividend is declared by the subsidiary but is not actually paid but it is adjusted inter se by passing book entries in the accounts of subsidiary as well as the assessee company. No dividend is actually disbursed. The accounting entry of dividend declaration is passed only once, annually. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. For this, revenue has raised following ground no.3: 3. The CIT(A)-VI, has erred in law in directing to compare Tax on normal income before rebate u/s. 88E with 10% of Book profit for applying Sec.115JB. 9. At the outset, Ld. Counsel for the assessee stated that the above ground is not arising out of the order of CIT(A). When this was confronted to Ld. Sr. DR he fairly conceded the issue and even we have gone through the order of CIT(A) and noticed that no such issue be raised before CIT(A), hence the same is dismissed as infructuous. 10. Now, we are coming to Assessee's CO No. 19/Kol.2011. At the outset, it is noticed that the CO of the assessee is barred by limitation for 164 days but assessee has filed one condonation petition along with affidavit stating the reason that this appeal was not filed on the advice of the counsel that the revenue's appeal is liable to be dismissed as not maintainable as revenue's appeal was filed for obtaining approval of COD at that time the same was mandatory in all cases involving undertakings owned by the Central Government. The assessee has stated the reasons in its affidavit at para 4 to 9, which reads as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NVAT actually paid during the relevant year amounting to ₹ 198.09 lacs, for which deduction was permissible u/s. 43B. 3. For that on the facts and in the circumstances of the case, the authorities below be directed to allow deduction for ₹ 172.05 lacs debited under the head Prior period adjustments as the liability to pay the expenditure had crystallized during the year under consideration. 13. Briefly stated facts are that the AO noticed from Schedule -23 to the accounts forming part of Balance Sheet that it has debited net prior period expenses of ₹ 172.05 lacs in its P L Account. According to AO, the assessee is following mercantile system of accounting. Hence, prior period expenses is not allowable as an expenditure as per the provisions of the Act. Hence, he added back the prior period expenses at ₹ 172.05 lacs. Aggrieved, assessee preferred appeal before CIT(A), who only directed the AO to allow only the item such as rebate and discount, salary and wages and other miscellaneous expenditure after verification but has not allowed basic of excise duty, education cess, statutory interest etc. Aggrieved, assessee is in appeal before us. 14. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Other Misc 6.81 CREDIT R Maintenance Plant 15.41 R Maintenance Vehicles 0.69 Freight Handling 0.43 1.04 Insurance 11.42 Service Tax 67.48 VAT Credit 2.20 TOTAL 204.25 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to transaction conducted in earlier accounting period, if new liability accrues or crystallizes in the later year, than such liability cannot be regarded as prior period expenditure even though in accounting parlance the same may be considered to be prior period adjustment. The assessee being a government undertaking whose plants are situated in Assam and registered office at Calcutta besides administrative office at Delhi and its several office and depots in different part of the country. The accounting procedure prescribed by C AG has institutionalized system of checks and balances and accordingly certain expenses required clearances from different authorities located at different locations and cities. This type of major expenditure debited under the head CENVAT credit wrongly claimed in earlier years, in which excess CENVAT credit was claimed on production of paper. During the year under consideration, on inspection of excise record by Central Excise Officials, certain procedural irregularities were detected while claiming CENVAT credit. On detection of irregularities the assessee was directed to pay basic excise duty of ₹ 1,31,10,849/-, education cess of ₹ 83,298/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , since the expenditure is not in the nature of preoperative or preliminary in nature. I agree with the arguments given by the AO in the assessment order. The disallowance made by the Ao is confirmed. Taking into consideration the alternative plea of the appellant, after examination of the tools and consumables details furnished by the appellant, the AO is directed to allow the deduction for the tools and consumables purchased and consumed in the year under consideration, after necessary verification. These grounds are partly allowed. Aggrieved, assessee is in second appeal before Tribunal. 17. We have heard rival submissions and gone through facts and circumstances of the case. We find that assessee is following a consisting accounting practice of writing off of loose tools in five annual equal instalments in the past. The assessee has filed details before us for the Ay 2004-05, 2005-06 and 2006-07 as under Assessment year Amount 2004-05 Rs.25.65 lacs 2005-06 Rs.26.44 lacs 2006-07 Rs.25.94 lacs The method ad ..... X X X X Extracts X X X X X X X X Extracts X X X X
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