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TMI Blog2016 (5) TMI 1354X X X X Extracts X X X X X X X X Extracts X X X X ..... se or which is prohibited by law shall not be allowed as expenditure. 3. Whether on the facts & in the circumstances of the case, the Ld. CIT(A) has erred in law by ignoring the fact that the Railway act has defined the demurrage and wharfage as the charge levied, charge means the blame or accusation hence penalty." 2.1 At the outset, Ld. A.R. submitted that the above grounds No.1, 2 & 3 are against the deletion of addition amounting to Rs. 1,39,30,000/- on account of demurrage and wharfage charges. He submitted that the assessee had debited Rs. 1,39,30,000/- as demurrage and wharfage charges in the P & L account, as it was paid to the Indian Railways towards delay in loading/unloading operation at the units beyond time frame fixed by Indian Railways. The Assessing Officer was of the view that the amount paid as demurrage and wharfage to Indian Railways is in the matter of fine or penalty and hence disallowed the expenditure. 2.2 Ld. CIT(A) dealt with this issue at para 11 page 37 of his order wherein, he held the payment are not in the nature of penalty or fine for violation of any statute. 2.3 Ld. A.R. submitted that this issue is covered by the order dated 20.05.2015of this T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee, the assessee will be allowed to follow the hybrid system of accounting which is against the code of IT Act. 4. Whether on the facts & in the circumstances of the case, the Ld. ClT(A) has erred in law by deleting the additions mode by the AO on account of accrued interest of Rs. 6.48 crores and Rs. 266.14 crores on protective basis by ignoring the finding of Hon'ble High Court in the assessee's case for A Y 2004-05, wherein court has held that "the addition, if any con only be made in the year when the award become the rule of court, which on the plain facts of the case took place of the previous year corresponding to A Y 200708. 5. Whether on the facts & in the circumstances of the case, the Ld. CIT(A) has erred in law by ignoring the fact that mere improbability of recovery, does not mean that no real income has accrued to the assessee. 6. Whether on the facts & in the circumstances of the case, the Ld. CIT(A) has erred in law by not considering the demurrage & wharfage expenses as penalty. 7. Whether on the facts & in the circumstances of the case, the Ld. CIT(A) has erred in law in not appreciating the provision laid down in explanation to section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l before the Hon'ble Delhi High Court has been filed. Since, interest has accrued to the assessee in the subsequent period up to A Y 2007-08 for the period from 14/11/95 to 31/03/2007 amounting to Rs. 266,14,09,000/- in view of the arbitration award decided in favour of the assessee, addition of Rs. 266.14 crore was made to the declared income of the assessee on protective basis by Ld. A.O. The Ld. AO made an addition of Rs. 6,48,18,5501- as accrued interest for the relevant previous year. The Ld. AO held that the assessee was pursuing the recovery of the amount, therefore, as per mercantile system of accounting the income should have first been declared and thereafter, as and when the assessee feels that the amount is irrecoverable the same can be written off in the books of accounts but the assessee neither has shown the interest receivable as income, nor written it off in the books of account. Being aggrieved, the assessee carried the matter to the Ld. CIT(A). 3.3 Ld. CIT(A) held that the Assessing Officer was not justified in making the addition of notional interest on the basis of directions and findings made at para 4.2 to 4.4 of his order. Now, the Department is in appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Dutch Court had dismissed the appeal filed by M/s. Karsan against the arbitration award and no fresh litigation has been filed challenging the said arbitration award. He supported the addition made by the Assessing Officer on account of accrued interest for the relevant previous year. 3.7 We have perused the relevant orders referred by the parties before us as well as the submissions made by them. There is no dispute that the ICA has awarded interest to the assessee @ 5% p.a. on the advance made to M/s. Karsan. It is also not disputed that the assessee could not make recovery against the advance (principal amount) of Rs. 130.69 crores, an amount of Rs. 1.05 crores only could be recovered leaving balance advance of Rs. 129.64 crors which could not be recovered till date. The notional interest awarded by the International Court of Arbitration, which has now attained finality is a hypothetical income which cannot be subjected to tax. Merely because the said amount has been awarded by way of an order, does not mean that the assessee has received such income. The assessee followed mercantile system of accounting where there cannot be a situation of hypothetical income being taxed. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Hyderabad (India) & New Delhi (India). Various interim attachments, civil attachments orders etc. have been obtained in respect of some of the assets held in the name of M/s. Karsan. 3.10 From the above, it is clear that the assessee has not yet been able to recover even the principal amount advanced to M/s. Karsan and it is not possible to consider the notional interest on the advance as income in the hands of the assessee, which is not received yet. Accordingly, we dismiss these grounds of revenue's appeal. 3.11 Grounds No.6-8 of the revenue's appeal are in respect of demurrage and wharfage charges paid to Indian Railways. Respectfully following the decision of this Tribunal in assessee's own case for Assessment Year 2009-10 in I.T.A.No. 4076/Del/2013, dated 20.05.2015 (supra), we dismiss these grounds of Revenue's appeal. 3.12 Grounds No.9 & 10 are general in nature and hence we are not inclined to adjudicate the same. 3.13 In the result, appeal filed by the Revenue for the Assessment Year 2007-08 stands dismissed. 4. Assessment Year 2008-09: The grounds of appeal raised by the Revenue for the year under consideration are as under: "1. Whether on the facts & in the cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said procedure at the time of the assessment proceedings. 10. Whether on the facts & in the circumstances of the case, the Ld. CIT(A) has erred in law by ignoring the fact that the assessee has not filed any new/additional documents which need to re-examined." 4.1 Grounds no.1-4 deal with the accrual of interest on advance given to M/s. Kasan. As we have dealt with this issue in detail in Assessment Year 2007-08 above, to void repetition, following the same discussion, we dismiss these grounds of appeal raised by the Revenue. 4.2 Ground No.5: Ld. A.R. submitted that this issue is covered by assessee's own case for Assessment Year 200910 in I.T.A. No. 4076/Del/2013 dated 20.05.2015. The Assessing Officer had made addition of Rs. 194.46 lacs in respect of the provisions made by the assessee for post retirement medical benefits as per AS-15. The assessee had debited an amount of Rs. 371.79 lacs on account of provision towards long service awards, post retirement medical benefits, TA on retirement and social security benefits which are as under: S.N. Nature of provision Debited to P & L account (Rs.) Actual payment (Rs.) A Long service award 30.94 lacs 15.50 lacs B P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue's appeal are in respect of demurrage and wharfage charges paid to Indian Railways. Respectfully following the decision of this Tribunal in assessee's own case for Assessment Year 2009-10 in I.T.A.No. 4076/Del/2013, dated 20.05.2015, we dismiss these grounds of Revenue's appeal. 4.4 Grounds No.9-10 are general in nature and hence we are not inclined to adjudicate the same. 4.4.1 In the result, appeal filed by the Revenue for the Assessment Year 2007-08 stands dismissed. B. Assessee's appeals: 5. Ld. A.R. submitted that the only issue raised by the assessee for the Assessment Year 2006-07 to 2009-10 relate to the disallowance on account of valuation of slow moving, non moving and obsolete stores. Ld. A.O. during the assessment proceedings observed that the assessee has reduced the profits due to valuation of slow moving, non moving and obsolete stores and spares. Assessing Officer observed that there was due modification in accounting policy. He thus disallowed the valuation arrived at by the assessee for all the Assessment Years under consideration. 5.1 Aggrieved by the order of the Ld. A.O., the assessee preferred appeal before ld. CIT(A) whoconfirmed the addition made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rying higher value of such inventory, become an unnecessary burden. He further submitted that the valuation thus confined for determination of realizable value of such stores/spare parts, which have not moved for more than 5 years, were identified as surplus/obsolete. 5.5 Ld. A.R. submitted that these reports were filed before the Ld. A.O. as well as Ld. CIT(A). He relied upon the decision of Hon'ble Supreme Court in the case of Chainroop Sampatram Vs CIT (1953) 24 ITR 481 (S.C.) and Hon'ble Bombay High Court in the case of CIT Vs Indian Rare Earths Ltd. (2015) 375 ITR 276, CIT Vs Corporation Bank Ltd. (1988) 174 ITR 616 (Kar.), Bharat Heavy Electricals Ltd. Vs DCIT (2005) (7) TMI-299-ITATDel. 6. On the contrary, Ld. D.R. submitted that the assessee has changed the method of valuation and has not reflected the true profits. He submitted that the assessee has not followed the mandate of Section 145A of the Act, which starts with a non obstinate clause and override the other provisions of the Act. He further submitted that the assessee's case is not similar to the facts of the case of M/s. Indian Rare Earth Ltd. (supra) as well as Corporation Bank Ltd (supra), the decisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to AS-2 due to the remarks by CAG in the annual report for immediate previous year i.e. F.Y. 2004-05. This change was done on the basis of the remarks by Auditors which was supported by opinion of highly reputed engineer valuer, after proper on the spot study of nature of plant & machinery and associated non moving stocks of stores and spares held in inventory. Thus, there was no mala fide in valuing the slow moving/surplus/obsolete Stores and Spare parts as per the valuation report received from engineering valuer. 9.3 In the instant case, the valuation of slow-moving/surplus/obsolete stores, spares was made on the basis of the report of the approved valuer, and it can be said that the amount written off was not an arbitrary one and claim of loss on this account was actual. Assessee has followed this policy consistently in subsequent years. It is an established principle in context of section 145, that 'Regular' does not mean 'Permanent' for system of accounting. The statute stipulates that the income shall be computed on the system of accounting 'regularly' followed by the assessee. However, the provision u/s.145 cannot be interpreted to mean that once a system of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ory for the purposes of determining the income chargeable under the head "Profits and gains of business or profession" shall be- (i) in accordance with the method of accounting regularly employed by the assessee; and (ii) further adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation. Explanation.- For the purposes of this section*, any tax, duty, cess or fee (by whatever name called) under any law for the time being in force, shall include all such payment notwithstanding any right arising as a consequence to such payment; (b) interest received by an assessee on compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the year in which it is received." 8. In our view, the objection raised by the assessee on account of the method of accounting is not justifiable, inasmuch as Section 145A deals with the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head "Profits and gains of business or profession" an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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