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TMI Blog2017 (12) TMI 990X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the above addition. accordingly, ground No. 3 of the appeal of the revenue is dismissed. Suppression of stocks with respect to dyes and moulds which was shown at opening stock but not in closing stock - Held that:- CIT(A) has deleted the addition holding that the stocks not shown in the closing stock were in fact sold during the year and same were also supported by copy of the invoice as well as the correspondence. In view of this we do not find any infirmity in the order of the ld CIT(A) in deleting the above addition. Consequently, ground No. 4 of the appeal of revenue is dismissed. Addition on account of lower gross profit - Held that:- The appellant has furnished the details called for. The books of account as prescribed are maintained and also the books of account are audited as seen from the 3 CA and 3 CD reports. Lower G.P. compared to earlier years may be one of the factors to be taken into account while resorting to rejection of trading results but it should not be the sole basis. The AO made some theoretical calculations and proceeded to estimate income. The action of the AO is not in accordance with the legal position as on date on the issue. In view of the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fact that the assets transferred to Gurgaon Unit was not entitled to depreciation as that unit was not functioning during that year . On the facts and in the circumstances of the case and in law the Ld . CIT ( A ) erred in deleting an addition of Rs . 277343 /- made out of disallowance of depreciation on electrical fittings which was claimed at 25 % instead of 15 % as per Rule 5 of the Income Tax Rules, 1961 . 3 . On the facts and in the circumstances of the case and in law the Ld . CIT ( A ) erred in deleting an addition of Rs . 450567 /- made as disallowance of electrical expenses without appreciating that these were for a building not used by the assessee for its business and hence was not allowance u / s 37 ( 1 ) of Income Tax Act, 1961 . 4 . On the facts and in the circumstances of the case and in law the Ld . CIT ( A ) erred in deleting addition of Rs . 897391 /- made on account of suppression of stock since two items of dies and moulds shown as opening stock as on 1 . 4 . 2003 have neither been sold nor shown in closing stock as on 31 . 3 . 2004 . 5 . On the facts and in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eved, the assessee preferred appeal before the ld CIT(A), who partly allowed the appeal of the assessee. The revenue aggrieved with the order of the ld CIT(A), preferred appeal before us. 6. Ground no 1 of the appeal is against the disallowance of depreciation of ₹ 19,92,000/-. 7. The ld DR relied up on the order of the ld AO and ld AR relied up on the order of ld CIT (A). 8. We have carefully considered the rival contentions and also perused the order of the ld CIT(A). The ld CIT(A) has discussed these ground covering all the facts as under:- 4 . Ground Nos . 1 . 1 and 1 . 2 are directed against the action of the AO in disallowing depreciation of Rs . 19,92,000 . The reasons given by the AO are as under : I have considered the assessee ‟ s reply . It is beyond comprehensive that various assets would have remained idle, for such a long time, as the machinery with the passage of time are likely to be ineffective / defective / junk, and the explanation that some machinery have been shifted to other units in the next year ( s ) is not plausible . It is apparent and evident that the assessee is not reporting the correct f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . @ 15 % Rs . 2,713 /- Misc . Equipment O . B . Rs . 1,02,418 /- Dep . @ 15 % Rs . 15,363 /- Total Rs . 19 . 92,647 /- 5.1 The AR filed detailed written submissions in this regard which are as under: Submissions :- The LD AO has disallowed Rs . 19,92,647 on account of depreciation on all the assets of the unit at Gurgaon on the premise that section 32 of the act requires that assets should be owned by the assessee and should also be used for the purpose of the business . As he found that the this unit had suspended working during the year therefore, he addressed himself wrongly to conclude that the assessee is not entitled to depreciation under the law . These machineries were transferred to other units where they were used for manufacturing to support this, vide letter dated 14 . 12 . 2006 ( which he mentions in para 5 . 7 ) , the assessee brought on record the evidences for transferring the machineries to the other unit at Plot No . 262, Sector - 24, Faridabad . Wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd . vs . CIT ( 239 ITR 775 ) ( SC ) 6.1 I have gone through the assessment order and the detailed written submissions filed by the AR. 6.2 The AO has disallowed ₹ 19,92,647 on account of depreciation on all the assets of the unit at Gurgaon on the premise that section 32 of the act requires that assets should be owned by the assessee and should also be used for the purpose of the business. As he found that this unit had suspended working during the year therefore, he concluded that the assessee is not entitled to depreciation under the law. These machineries were transferred to other units where they were used for manufacturing to support this, vide letter dated 14.12.2006 (which he mentions in para 5.7), the assessee brought on record the evidences for transferring the machineries to the other unit at Plot No. 262, Sector-24, Faridabad. It is argued by the AR that as per the block systems of assets as introduced in 1989, the entire small or big machines lying in one unit or any other unit, they continue to be part of the block assets and when it is being transferred from one unit to another the cost at which is being transferred does not remain relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admissible . The explanation is quite contrary to the specific Rule under the l . T . Rules and particularly when the assessee has calimed depreciation under the head Electric Installation and not under the head Plant and Machinery ‟ , depreciation can be allowed only at the rate of 15 % and not at 25 %. It is worked out at under : W . D . V . Addition April to Sep Oct . to March 24,51,111 @15 % 124071 @15 % 3,96,472 @7 . 5 % = Rs . 4,16,012 / Claimed at Rs . 6,93,3 5 57 - Excess claimed and the same is disallowed Rs . 2,77,343 /- ' 7 . The AR filed detailed written submissions in this regard which are as under : Facts relating to this ground of appeal are that the assessee company is engaged in manufacturing of Auto Component . The entire Plant and Machinery situated in all the four units are operated with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s : Did the article fulfil the function of a plant in the assessee ‟ s trading activity ? Was it a tool of his trade with which he carried on his business ? If the answer was in the affirmative, it would be a plant . Following the above landmark decisions, further the followings have been held to be plant and was entitle to depreciation accordingly 1 . Internal telephone systems constituted plant and the assessee was entitled to investment allowance in respect of it - 192 ITR 20 ( Karnataka ). 2 . The cost of crane attached with a truck was held to be integral part of the truck and therefore, the depreciation was allowed as applicable on the truck - 256 ITR 50 ( Gujarat ) 3 . Sanitary Pipeline fittings in a cinema theatre for in the category of plant - 268 ITR 432 ( Rajasthan ). In view of the above landmark judgments of the Supreme Court and followed by the various high court, the Ld AO has erred in not allowing depreciation on the Electrical Installations at par with plant and machinery . It is, therefore, prayed that the disallowance of depreciation should be deleted as it deserves to be deleted . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show that electricity bills were almost at the minimum charges, even when units consumed, each month, were within the range of about 1000 units . It is noticed that the amount of Rs . 38,147 /- paid in April, 2003 related to the earlier period . Since the assessee has maintained books on mercantile basis, this amount is not allowable on payment basis . Accordingly, the amount of Rs . 38147 /- is not admissible in this year . During discussion, it was informed that building was sold in the subsequent period ( s ). It is thus apparent that Building with or without machinery was not used at all and the same was intended to be sold . On these facts, expenses incurred on electricity bills cannot be said for the purposes of the business of the assessee, but the same were incurred so as to facilitate the building etc to be sold later on . Accordingly, the whole of expenses at Rs . 4,50,567 /- are not allowed . 10 . The AR filed detailed written submissions in this regard which are as under : The Ld AO has made disallowance of Rs . 4,50,567 . 40 on the pretext that Land and Building has been sold in the next year and thus the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and it was not in capital nature also, therefore, the disallowance of electricity bills made by the AO should be deleted . 12 . I have gone through the assessment order and the detailed written submissions filed by the AR in this regard . The expenditure was incurred in the course of the business of the appellant . Whether there is any consumption of electricity or not, the appellant is required to pay minimum electricity charges . If the electricity charges are not paid, the electricity connection will be disconnected or cancelled . The payment of minimum amount is as per the rules and regulation of supplier of the electricity . After careful consideration of the facts, the action of the AO is not approved . 17. The ld CIT(A) has deleted holding that these expenditure was incurred for the purposes of the business and they are minimum amounts as per the rules. In view of this we do not find any infirmity in the order of the ld CIT(A) in deleting the above addition. accordingly, ground No. 3 of the appeal of the revenue is dismissed. 18. Ground No. 4 of the appeal is against the deletion of ₹ 897391/- made by AO alleging suppression of st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting to Rs . 34,34,718 for 27 items . Kindly refer paper book page no 23 . During the previous year i . e . 2003 - 04 after completing, 25 of 27 items were sold for Rs . 78,76,080 . Sl . No . Tool Code Description G . Total Amount 1. OI V02500/2600 CHECKER COMP R FR DR 467257 2. S01V02700/2800 CHECKER COMP R FD RDR 430134 TOTAL 897391 To the specific query of the AO that why these two items were not appearing in the closing stock as on 31 . 03 . 2004, a detailed submission supported with evidences was made as under :- Regarding matching of Dies and Tools ‟ shown as work in progress as on :- On page - 2 of our letter 5 . 12 . 06 we have made the detailed submission and have also shown that the assessee has sold Dies and Tools ‟ worth Rs . 1 . 32 Crore during F . Y . 2003 - 04 . The c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 21 . 12 . 2006 at 5 . 18 p . m . is enclosed . This is a confirmation of the mail sent by the assessee at mail dated 21 . 12 . 06 at 4 . 35 p . m . on 21 . 12 . 2006 which describes the whole set of events and the reasons also why Honda Siel rejected the tools made by the assessee . It has been shown that the tools which the assessee started in F . Y . 2002 - 03 and on which some expenditure were incurred during F . Y . 2003 - 04 were scraped due to its non - acceptance by the customer . Since this was a customized tools only for Honda Siel therefore, the major cost incurred could not be saved and the components what - so - ever could be salvaged were saved and used in other tools . The AO has not shown that the plea of the Assessee was incorrect or false and no evidence has been led . After careful consideration of the facts and circumstances of the case, I am in agreement with the contentions of the AR . 21. The ld CIT(A) has deleted the addition holding that the stocks not shown in the closing stock were in fact sold during the year and same were also supported by copy of the invoice as well as the corre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have examined the issue in great detail . The following are G . P . rates declared for various years : Assessment Year . GP 2006-07 21.24% 2005-06 23.18% 2004-05 25.68% 2003-04 30.00% 2002-03 28.08% 2000-01 27.30% In paras 16.1 to 16.20 the AO has observed in the assessment order about the valuation of closing stock. The AO had also given figures relating stock which were filed at two different times, first on 30.07.2006 and second on 18.10.2006. It is found from the order that in both the details quantity of different items as well as the final figure of stock is same. In the details furnished on first occasion the value applied was individually and whereas in the in the latter details, average value was taken. The AR clarified that the difference in representation has arisen since the accountant who had been handling expired and the details furnished later were prepared by junior accountant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an 10%. On the other hand the appellant has shown scrap in Excise records more than 10% and which has been sold from time to time. The scrap account in the Excise records has been accepted by the Excise Department. The appellant has also placed on page no. 217 which is the reply to the AO where scrap has been fully explained. Therefore it is held that the scrap accounted for by the assessee cannot be doubted as no material has been brought on record to prove it otherwise. On page no. 160 to 162 the appellant has placed copy of assessment order passed by the same AO in the case of M/s Royal Tools (India), Faridabad, which is also a automobile ancillary like the appellant, where the AO accepted the G.P rate of 13.5%. As per page No. 127 the G.P. in different years has been given and it is found that in A.Y 2005-06 and 2006-07, it has fallen further by 2.50% and 1.94% respectively. For these two assessment years trading results have been accepted. The appellant has furnished the details called for. The books of account as prescribed are maintained and also the books of account are audited as seen from the 3 CA and 3 CD reports. Lower G.P. compared to earlier years may be one of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or infringement . Therefore, disallowance of this payment is totally devoid of merits and should be deleted . 30 . I have gone through the assessment order and the detailed written submissions filed by the AR . After careful consideration of the facts of the case, I am in agreement with the contentions of the AR and the disallowance is hereby deleted . 26. Therefore, we dismiss ground No. 6 of the appeal. 27. Ground No. 7 of the appeal is with respect of disallowance of bad debts of ₹ 106127/- with respect to two parties who are the customers of the assessee and whose accounts have been written off. The ld CIT(A) allowed the claimed of the assessee as it satisfied necessary conditions. The ld AO disallowed it as the assessee could not file copies of the account of the assessee from the books of those parties. We do not find any justification for making this addition and hence, ld CIT(A) has rightly deleted the above disallowance. In the result ground No. 7 of the appeal is dismissed. 28. Ground No. 8 of the appeal is against addition of ₹ 5 lacs made by the ld Assessing Officer holding that it is extremely high as compared to previous year. T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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