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TMI Blog2003 (7) TMI 743X X X X Extracts X X X X X X X X Extracts X X X X ..... observing inter alia that 'the contract receipts were thus realized as per the terms of the contract agreement: and 'the bank guarantees which had been furnished for the removal of the defects, if any, were in the nature of the securities and the same did not effect the accrual of the contract receipts in favour of the appellant company. 3. That the CIT(A) erred on facts and in law in confirming the action of the AO in allowing depreciation on expenditure of Rs. 5,65,005/- at the rate of 10% treating the same as part of furniture and fixtures as against the claim of the appellant for total write off of the expenditure either as current repair or as temporary structures eligible for 100% depreciation. 4. That the CIT(A) erred on facts and in law in confirming disallowance of expenditure of Rs. 9,100/- on repairs at the residence of employees as non business expenditure. 5.1 That the CIT(A) erred on facts and in law in confirming the action of the AO in disallowing deduction for interest accrued but not due amounting to Rs. 21,15,615/- on sugar development fund loan. 5.2 That the CIT(A) erred on facts and in law in further holding that the amount of interest was e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r stock in line with the accepted practice in the sugar industry. The assessee was asked to explain as to why this change should be accepted and through its written submissions, it was stated on behalf of the assessee that the change in the method of valuation is in accordance with the guidelines of the Institute of Chartered Accountants of India that the inventories should be valued at lower historical cost and net realizable value. It was further explained before the AO that in the past levy and free sale sugar have been treated as one item which was not correct either on facts or on law in so far as levy sugar is totally a different item to free sale sugar as recognized not only by the bankers of the assessee company but also by the Excise authorities and separate records had to be kept of two types of sugar. he accordingly, valued these two types of sugar independently. In support of his contention, the assessee has relied upon some case laws. The AO has noted that upto AY 90-91 the assessee had been continuously following a particular method for valuing the closing stock of sugar but suddenly in AY 91-92, in changed the method of valuing the closing stock of sugar and third me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not bona fide. In any case the subsequent events show that the method adopted in the year under appeal has not been followed consistently in future. The details in paras 5 and 8 of the assessment order also indicate that the appellant reduced its incidence of tax through the change in the method o valuation. It was held in the case of ITO Vs Food Specialties, 206 ITR 119 that such change was permissible when it was bona fide and not for the purpose of evading tax. I also agree with the AO that the appellant's reliance on the judgments in the cases of Carborandum Universal Ltd. and National Grindlays bank is misplaced as method adopted by the appellant is not bona fide or restricted for a particular year and not regularly followed in the subsequent years. It was held by Bombay High Court in the case of Hari Nagar Sugar Mills Ltd. Vs. CIT 207 ITR 901 that there could be no splitting up of the stock of sugar and its valuation at different rates. In view of these observations as well as the judgments quoted by the AO in Para 10 of her order the contentions of the appellant are rejected and the addition of Rs. 1,68,71,980/- is upheld. 4. Aggrieved, the assessee has preferred a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee clearly indicate that the change in valuation of closing stock was done by the assessee at its own convenience. The facts of the case categorically lead to a conclusive opinion that change in method of valuation of closing stock is not bona fide but with intent to avoid incidence of tax. As such, in cannot be allowed, Ld. DR further contended that the contention of the assessee that the method of valuation adopted in the impugned assessment year should be accepted and followed continuously in future and further change in method of valuation adopted in the AY 93-94 should be out rightly rejected. The Ld. DR further submitted that it has been repeatedly held that the assessee has a right to change its method of accounting or valuation of closing stock but it should be bona fide and continuously followed in succeeding years. But in the instant case, the method of valuation of closing was changed only during the AY 91-92 and 92-93 with the intent to reduce the incidence of tax and thereafter, the assessee again reverted back to its old method of valuation. In these circumstance, it cannot be said that change in method of valuation is bona fide. In support of his content ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enience to defraud the revenue. In the case of ABAD Fisheries Vs. CIT (supra) their lordships of the Kerala High court have categorically held that the change must be bona fide and changed method must be followed regularly. Change to mercantile system and change again to cash system in following year cannot be held to be a bona fide change because it was not followed regularly, During the course of hearing, the Ld. Counsel for the assessee could not satisfactorily explain as to why he has reverted back to its old method of valuation in AY 93-94 and for what reasons now the assessee is submitting that the method adopted during the AY 91-92 and 92-93 must be followed in succeeding years after rejecting the method of valuation adopted by the assessee for valuing its stock for the AY 93-94. Our attention was invited to a judgment of the Bombay High Court in the case of Harinagar Sugar Mills Ltd. Vs CIT of which facts are quite identical to the present case. 8. In that case, the assessee was a limited company manufacturing sugar and in past closing stock of sugar was being valued at the market rate. In the previous year relevant to the AY 91-92, the assessee valued the closing stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture on purely temporary erection such as wooden structure on which 100% depreciation is allowable. The remaining expenditure of Rs. 5,65,005 Rs. 1,81,222 + 11,700 +3,24,783 + Td/ 24000+23,300 was incurred on aluminium partition, furniture and fixtures. Since it was not a temporary erection, the AO allowed 10% depreciation thereon. Aggrieved the assessee preferred an appeal before the CIT(A) with the submission that the aluminium material is very convenient to install and its cost compares favourably with wooden items of similar quality. In support of his contention, he has relied upon the case of Empire Jute co. 124 ITR 1 with the submission that it is essential to consider the nature of advantage in a commercial sense to know whether a particular expenditure is capital or revenue. The CIT(A) re-examined the issue in detail and after having examined the relevant provisions of the IT Rules, he confirmed the findings of the AO after holding that the anodized aluminium structures and doors and wall panellings cannot be termed as temporary erection. 12. Aggrieved, the assessee preferred an appeal before the Tribunal with the submission that entry I(4) of Appendix I of the IT Rules ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... about the revenue and capital expenditure whereas in the instant case, the dispute is with regard to the nature of capital expenditure whether it is a temporary erection of falls under the head furniture and fitting. 14. Having considered the rival submissions and from a careful perusal of record, we find that the assessee has not claimed these expenditures as revenue expenditures in its book of accounts. In the tax audit report, assessee claimed it to be a temporary erection and claimed depreciation at 10%. Similar claim was raised before the CIT(A). But during the course of hearing, the assessee has raised a new claim that these expenditures should be treated as revenue expenditure and deduction of the same should be allowed while computing business income of the assessee. Since this issue requires proper verification whether the property was owned by the assessee or the expenditures are incurred in order to acquire enduring benefit, it cannot be entertained at this belated stage. We therefore, confine ourselves to the moot question whether the expenditures were incurred to raise a temporary erection entitling the assessee to depreciation at 100%. We have also carefully examin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduced during the course of hearing on behalf of the assessee. Since the assessee failed to prove that the expenditures were incurred in terms of employment or in the regular course of business, we do not find any force in the claim of the assessee. We therefore, dismiss this ground of the assessee and uphold the order of the CIT(A). 17. Ground no. 5 relates to the disallowance of deduction of interest accrued but not due amounting to Rs. 21,15,615 on Sugar Development fund Loan taken but it was not allowed by the AO on the ground that according to letter dated 16.7.93 addressed to the assessee company by Industrial Finance Corporation of India Ltd, the repayment of SDF loan together with interest thereon is to be payable in five years instalments commencing from one year after the repayment of loans and interest thereon availed of from the specified financial institution in the modernization scheme or after 8 year period from the date of issue of cheque from the Govt. of India to IFCI whichever is earlier. Accordingly, the AO held that the interest accrued only on 18.11.96, as such it cannot be allowed in the relevant assessment year. The assessee preferred an appeal before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e called to be a direct payment to the Govt of India for taking the case out of the purview of Section 43B of the Act. He further submitted that Section 43B is a non-obstantie clause starting with notwithstanding anything contained in the provisions of this Act . It means it has an overriding effect on other provisions of this Act and according to it deductions are otherwise allowable under this Act in respect of different payments given in sub-section a to f on payment basis. The Ld. DR further submits that since as per the agreement repayment of interest accrued thereon starts w.e.f. 18.11.98 the interest alone cannot be claimed to have been accrued during the impugned assessment year. 20. On consideration of rival submissions and from a careful perusal of referred, we find that admittedly, repayment starts w.e.f. 18.11.96 in 5 yearly installments as per the schedule along with interest accrued thereon. The agency involved in granting the loan is IFCI which itself is a public sector and financing agency though the loan was sanctioned through a govt. letter but that letter does not take away nature of advancement of loan from the purview of Section 43B of the Act because the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since the liability is not ascertained and determined in the year, it cannot be allowed as revenue expenditure. Accordingly, he rejected the claim of the assessee. The assessee preferred an appeal before the CIT(A) with the submission that as per the Supreme Court directions, the assessee was required to pay half of the amount which became due in 4 monthly installments with interest of 12.5% from the date of the order and for the balance amount, the assessee had to furnish a bank guarantee inclusive of interest on 12.5%. Since the assessee has complied with the directions of the Supreme Court, it raised a claim and its liability of payment cannot be treated as a contingent liability. The claim of the assessee was re-examined by the CIT(A) in the light of various judgements but he was not convinced with the explanation of the assessee and confirmed the disallowance after making the following observations :- I have carefully considered the observations of the AO as well as submissions of the appellant. Since the Supreme Court while granting Leave Petition has ordered that interest @12.5% is to be only on the instalments payable in four months (which is half of the amount due) fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le High court cannot be called to be a final verdict on the dispute, on the basis of which liability can be crystallized and quantified. Since the impugned liability has not been crystallized and determined in the year in question, the assessee's claim of payment against the liability cannot be allowed. 25. In support of his contention, Id, DR has relied upon the following judgments : Kedarnath Jute Manufacturing Co. Ltd. 82 ITR 363 Madras Industrial Investment corporation Ltd. Vs CIT 225 ITR 802 26. Having considered the rival submissions and from a careful perusal of the record, we find that the impugned liability is admittedly a contractual liability and it can only be claimed on its accrual. Once the contractual liability is disputed, it can only be claimed on its crystallization or quantification. In the instant case, the present liability i.e. excess levy sugar price was disputed by the assessee by filing the writ petition before the High Court of Allahabad and it was into claimed during its pendency before the Hon'ble High Court. The Hon'ble High Court dismissed the writ petition but the verdict of the High Court was challenged by the assessee before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose of Section 37(2A) of the Act. In support of his contention, he relied upon the following judgements :- Sarda Plywood Industries Ltd. Vs CIT 238 ITR 354 CIT Vs Andhra Sugars Ltd. 225 ITR 118 CIT Vs. Indo Asian Switchgears (P) Ltd. 92 Taxman 86 30. The DR, on the other hand, has submitted that in tax audit report a sum of Rs. 12,76,373 was shown as entertainment expenses and the assessee itself has claimed the expenditure at 35% of the employees participation. In the light of categorical statement of the assessee, 100% expenditure cannot be treated as incurred on seminars conducted for the assessee's employees only. 31. On careful perusal of the record in the light of rival submissions, we find that the assessee itself has claimed 35% participation of its employees in all these seminars. On a careful perusal of the break-up of the expenses and material available on record, we find that the CIT(A) has already given proper directions to the AO to allow 35% of such expenditure on account of employee's participation. Since the CIT(A) has properly adjudicated the impugned issue and we do not find any infirmity therein, we use Id his order. 32. In the result, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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