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TMI Blog2007 (7) TMI 658X X X X Extracts X X X X X X X X Extracts X X X X ..... ion whether it is paid or not. Similarly, while valuing the stock, the duty paid by the assessee will have to be included in it. Thereafter, the duty not paid by the assessee will be disallowed u/s 43B of the Act. It was further pointed out that this method has now been incorporated in section 145A, but the same was applicable even in absence of section 145A and, thus, the newly inserted section is merely clarificatory in nature. 2.1 Before us, the ld. counsel mentioned that the assessee had paid customs duty in respect of some goods which were in transit within India. These goods were neither shown in purchases nor in closing stock although they were shown in inventories. The Customs Authorities had appraised the goods and the duty thereon had been paid in this year. Therefore, the duty was claimed as deductible in the statement of income. The learned CIT(A) invoked the provision contained in section 145A, which came into force from 1.4.1999 i.e., it was applicable for A.Y. 1999-00 and onwards. The section was not applicable to the proceedings of the year under consideration. 2.2 In order to support his case, he relied on the decision of Hon'ble Bombay High Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f section 145A are not applicable to the proceedings of this year. Further, once the liability of customs duty has been incurred, it is admissible u/s 43B in the year of payment. The liability has been paid in this year. The removal of the impugned amount, as done by the assessee indirectly by not including the goods in purchases and closing stock, is the effective way of granting deduction u/s 43B and doing so does not amount to disturbing the figure of the closing stock for this year.Thus, it is held that the ld. CIT(A) erred in holding that the impugned amount was includible in the closing stock, 2.5 In result, this ground is allowed. 3. Ground no. 2 is against the finding of the ld. CIT(A) that the assessee was not entitled to deduct a sum of ₹ 66,85,647/-, being balance in RG23A (Part II) of ₹ 64,14,689/- and balance in PLA of ₹ 1,70,958/-, in computing its income. 3.1 The ld. CIT(A) pointed out the every assessee under the Central Excise Act has to maintain a current account under Rule 173G for each excisable good. The account should contain sufficient balance to cover excise duty payable on goods intended to be removed. The Commissioner may also allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the matter and, therefore, the Assessing Officer cannot be directed to follow an order which is not in existence. She agitated that the matter has to be decided in her favour in view of the order in the case of Maruti Udyog Ltd. (supra) for the reason that the liability had not been incurred by the assessee. 3.4 We have considered the facts of the case and rival submissions. We are of the view that the question here is different from question in ground no. 1 as the question there was raised in the context of the facts that the liability had been incurred as well as paid by the assessee. The facts here are that the advance deposit has been made, but the goods have not been removed. The case of the assessee is that the liability is incurred on 'manufacture', which has taken place and the decision in the case of Raj and San Deep Ltd. (supra), in regard to deposit in RG 23A (Part-II) is in favour of the assessee. It may be added here that this case does not deal with deposit in PLA, which can be refunded to the assessee on following the prescribed procedure. We may also note that section 43B(a) deals with any sum payable by way of tax, duty etc. Explanation 2 equates ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ints of view, we are inclined with the ld. DR and, therefore, the ground has been disposed off on merits by taking existing orders and statutory provisions into account. 3.6 In result, this ground is dismissed. 4. Ground no. 3 is against disallowance of ₹ 96,069/- u/s 43B, being interest accrued but not payable to the IDBI Ltd. In this connection, the ld. CIT(Appeals) pointed out that while the claim may be justified u/u/s. 37 and 145, the claim was not justified u/s 43B as the amount was not actually paid. In view of non-obstante clause in section 43B, the claim could not be allowed u/s 37 or section 145. 4.1 Before us, the ld. counsel pointed out that as per terms of agreement, the impugned amount became payable to IDBI Ltd. on 9 4.1995, after the close of the previous year; Clause (d) of section 43B comes into operation in respect of any interest payable on loan or borrowing as per terms and conditions of the agreement governing such loan. As per terms and conditions, the interest accrued in this year and, therefore, it was accounted for in the books. However, since it was payable after the close of the previous year, the provision contained in the clause (d) could no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee is entitled to deduct the amount if it was not payable within this year as per agreement. The Assessing Officer shall verify the agreement and allow the amount if it was not payable in this year. 4.4 Thus, this ground is treated as allowed. 5. Ground No. 4 is against the finding of the ld. CIT(A) that the assessee was not entitled to deduct depreciation amounting to ₹ 23,66,165/- on the w.d.v. of technical know-how fees. The learned CIT(Appeals) dismissed the ground of the assessee by pointing out that the whole of the amount was amortized by the Assessing Officer over six years under section 35AB. 5.1 The ld counsel pointed out that the assessee had acquired the know-how in the previous year relevant to A. Y 1989-90. He referred to the order of the Tribunal for A.Y. 1990-91 in ITA No. 2052(Del)/96 (supra), in which it was pointed out that ultimately nothing stood disallowed for A.Y. 1989-90 However, a part of the technical know-how fees was also paid on capital account for setting up plant and machinery, which was in the nature of capital expenditure in terms of the order in the case of Gujarat Guardian Ltd., dated 30.5.2005. Therefore, the assessee was directed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsequential, deduction cannot be allowed for the same amount in this year also. Thus, this ground is dismissed. 11. Ground no. 3 is against disallowance of ₹ 1,29,40,471/- u/s 43B of the Act. The ld. CIT(Appeals) mentioned that the Assessing Officer had rightly disallowed the deduction, which he had failed to do in A.Y 1995-96 and for which the income was enhanced by him. It was common ground of the rival parties that the ground is similar to ground nos. 1 and 5 in the appeal for A.Y. 1995-96 (supra) and the order passed on those grounds may be followed in this year Following our order on those grounds, this amount is allowed to be deducted in computing the income. Thus, this ground is allowed. 12. Ground no. 4 is against non-deduction of provision of ₹ 2,69,895/- made by the assessee towards leave encashment. The disallowance was upheld by the ld. CIT(A) by following the decision in the case of CIT Vs. Bharat Earth Movers Ltd., 211 ITR 515 (Kar.). 12.1 The ld. counsel referred to item no.1(ii) of Schedule Q to the account where it was inter-alia pointed out that the liability was recognized as per actuarial valuation. It was pointed out that Accounting Standard (AS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers (supra) that the liability in respect of leave encashment, computed on a proper basis, is deductible expenditure. The question is whether, only incremental liability pertaining to this year or the full provision is so deductible? The assessee has been following mercantile system of accounting since inception. It is another matter that no provision was made in past in respect of this liability. Thus, it is not a case of change in system of accounting as argued by the ld. counsel. The liability is to be ascertained in accordance with provisions contained in sections 4 and 5, which can only be for this year as the charge of income-tax is on profits of a particular year. AS-15 does not lead to creation of any fresh liability for the first time. It merely mandates that provision should be made for the liability in order to reflect properly the position of assets and liabilities of a company. If in pursuance of this standard, provision is also made for past liabilities, the same will not be expenditure incurred in this year. Further, this standard has not been notified u/s 145. In any case, provisions of sections 4 and 5 will take precedence over provisions of section 145. Thus, look ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of business. The Hon'ble Court referred to the decision in the case of Otis Elevator Co. (India) Ltd. Vs. CIT, (1992) 195 ITR 682, in which a specific finding was given that the expenditure was for the purpose of business. The Hon'ble Court pointed out that allowance of ₹ 1.00 does show that the expenditure was for the business. Thus, it was held that the expenditure was deductible. 13.2 The learned DR pointed out that the expenditure was one time expenditure, which bestowed benefit of enduring nature on the assessee. The assessee has not proved that the expenditure related to the business in any manner. She relied on the decision of Hon'ble Delhi High Court in the case of CIT Vs. Engineers India Ltd.,(1999) 239 ITR 237. In that case, the assessee paid ₹ 90,000/- to FRI as initial deposit for membership and claimed it as revenue expenditure. The assessee was to pay annual fees to avail of the benefit of literature on technical matters issued by the FRI to the members. Failure to pay annual fees will lead to stoppage of the literature supplied to the assessee. The Hon'ble Court held the membership did not confer any advantage of enduring nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , dated 10.12.2001. The learned counsel also pointed out that amendment in section 43A on this issue came into force w.e.f. 1.4.2003 and the amendment is prospective nature, applicable to proceedings of A.Y. 2003-04 and onwards. Respectfully following the earlier order of the Tribunal in this very case, this ground is dismissed. 18. Ground no. 2 is against the finding of the learned CIT(A) that the expenditure on food and lodging in hotels, in which employees were also present, is not in the nature of entertainment expenditure, covered u/s 37(2) of the Act. It was common ground that in past, the Tribunal held that 35% of the expenditure has to be attributed to the employees, which is not expenditure in the nature of entertainment, vide ITA No. 4096(Del)/96 for A.Y. 1991-92, followed in ITA No. 1682(Del)/98 for A.Y. 1992-93. Respectfully following these orders, it is held that 35% of the expenditure shall be excluded and the balance shall be taken as entertainment expenditure to be dealt in accordance with provision contained in section 37(2). This view find support from the decision of Hon'ble Delhi High Court in the case of CIT Vs. Expo Machinery Ltd., (1991) ITR 576. Thus, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity date expired. Thus, there is no reason to disallow loss on account of its write off, which occurred in the course of business. However, the balance write off of stores etc. was out of capital work in progress. No doubt the assessee has suffered loss, but the lower authorities have not examined whether the loss was capital loss, capital expenditure or revenue expenditure. Thus, it is not possible for us to give a definite finding on the admissibility of this loss. Thus, the matter is restored to the file of the Assessing Officer to examine this issue afresh and decide it after hearing the assessee. Thus, this ground is treated as partly allowed. 20. Ground no. 4 is against the finding of the ld, CIT(Appeals) in which disallowance from the membership fees was restricted to 20% of the expenditure. It was common ground of both the parties that the issue is connected with ground no, 5 of ITA No. 3552(Del)/96 (supra), being assessee's appeal for this year. In that order, it was held that the assessee was entitled to deduct the whole of the expenditure of ₹ 6.00 lakh. In view thereof, this ground is dismissed. 21. Ground nos. 5 and 6 are in the nature of prayer and residu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s dismissed. 27. Ground no. 5 regarding deduction u/s 80-G was not pressed by the learned counsel. Ground no. 7 is general in nature, which does not require any decision from us. Thus, these grounds are dismissed. 28. In result, the appeal is partly allowed. ITA No. 3939(Del)/2000-A.Y, 1997-98-Appeal of the Revenue 29. Ground no. 1 is against the finding of the ld. CIT(A) that expenses incurred on food and lodging in hotels, where employees also participated, does not amount to entertainment expenditure within the meaning of section 37(2) of the Act. This ground is similar to ground no. 2 in ITA No. 4037(Del)/1999 (supra) of the revenue's appeal for A.Y. 1996-97. Relying on that order, it is held that 35% of the expenditure will be taken to be the expenditure on employees, which is not entertainment expenditure. The rest of the expenditure shall be taken as entertainment expenditure u/s 37(2) of the Act. Thus, this ground is partly allowed. 30. Ground no. against the deletion of the disallowance of bad debt of ₹ 6,17,645/-, stated to be enhanced house tax demanded by the landlord. The Assessing Officer disallowed the amount by stating that it was never shown as incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defective, it is transferred to "Imported rejection material account". However, the supplier party cannot be debited for the value of such defective material as the payment has already been made through the letter of credit (L/C). The rejected material is again tested at length with a view to remove the defect. When the lamps are found to be totally unusable, the value thereof is charged to P and L account. The ld. CIT(A) considered facts and held that the amount was deductible in computing the income. 31.1 The ld. D.R. referred to the findings of the Assessing Officer and the learned CIT(A). In particular, it was pointed out that no evidence was placed before the Assessing Officer regarding purchase of lamps or that the rejected lamps were unusable. There is also no evidence about the steps taken by the assessee with the seller to replace the defective lamps or make good their value. Complete silence of the assessee in the matter shows that there were no defective lamps. 31.2 As against the aforesaid, the case of the ld. counsel was that the payment had already been made through L/C as goods were imported from Japan. The company had a system of inspecting and testing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount of ₹ 18.00 lakh was added u/s. 68 of the Act and interest thereon was disallowed. 32.2 Before the learned CIT(A), it was submitted that the deposits were received through a public offer. Each applicant was required to fill a form, which contained name, address and details of payment. All deposits were received by way of crossed or account payee cheques. The payments were also made by way of cheques or demand drafts. Wherever applicable, tax was deducted at source u/s 194A. There could be some case where depositors were not assessed, P.A. No. were not allotted or there was difficulty in obtaining confirmations due to distance, lack of time or other practical difficulties. None of the aforesaid 18 depositors were related to any director. Such cases were about 4% of the total number of depositors. If the Assessing Officer disbelieved some deposits, he could issue summons and examine the parties. The assessee discharged his prima-facie onus when copies of application, containing details as aforesaid, were filed before the Assessing Officer. The learned CIT(Appeals) considered the facts and decision in the case of Additional CIT Vs. Bahri Bros. (P) Ltd., (1985) 154 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ITAT, Delhi Bench "E", New Delhi, in the case of DCIT Vs. Vam Organic Chemicals Ltd. in ITA No. 949(Del)/1998, dated 30.09.2005, a copy of which was placed before us. The Tribunal pointed out that the deposits were under Public Deposit Scheme, in which various amounts were received by way of account payee cheques/drafts. The names, addresses and bank account details were there on record. The assessee requested issuance of summons where confirmations were not filed. In view of the decision of Hon'ble Patna High Court in the case of Jhaverbhai Bihari Lal and Co. Vs. CIT, 154 ITR 591, it was incumbent upon the A.O. to issue summons and enforce attendance, the lack of which vitiated the proceedings. Similar deposit of ₹ 95,000/- was taken as genuine in the immediately preceding year. The Tribunal came to the conclusion that in such circumstances, the deposits of ₹ 5,40,000/-in this year should have been accepted as genuine. 32.5 In reply, the ld. DR pointed out that the acknowledgements of the applications were not given to the depositors as will be seen from the paper book. 32.6 We have considered the facts of the case and rival submissions. It is seen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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