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TMI Blog2023 (3) TMI 282X X X X Extracts X X X X X X X X Extracts X X X X ..... nses, the same are revenue in nature and incurred for the purpose of business of the assessee. Again the Gujarat High Court in the case of Dishman Pharmaceuticals Chemicals Ltd. [ 2019 (10) TMI 1195 - GUJARAT HIGH COURT] held that once prior period income was held to be taxable, prior period expenditure should also be allowed to be set off and assessee was not obliged in law to indicate any direct or indirect nexus between prior period income and prior period expenditure. Decided in favour of assessee. Disallowance of depreciation - plant and machinery installed and put to use or not? - HELD THAT:- In the case of Southern Petrochemical Industries Corporation Ltd [ 2007 (7) TMI 284 - MADRAS HIGH COURT] the High Court held that stand-by assets not put to use during year will be entitled to depreciation. In the impugned year under consideration, the assessee had furnished certificate from the General Manager of the company and another certificate from an independent party to the effect that plant and machinery had been installed and put to use during the year under consideration. However, Ld. CIT(Appeals) did not accept the additional evidence placed before him during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For the Revenue : Shri Atul Pandey, Sr. D.R. ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:- These two appeals filed by the assessee are against the order of the ld. Commissioner of Income Tax (Appeals)-III, Baroda, in proceeding u/s. 250 vide order dated 28/08/2012 29/08/202012 passed for the assessment year 2005-06 2006-07. 2. The assessee has raised the following grounds of appeals: Assessment year 2005-06 1. That on facts, and in law, the learned CIT(A) has grievously erred in confirming the addition of Rs. 6,01,250/- being share issue expenses, treating the same as capital in nature. 2. That on facts and in law, the learned CITIA) has grievously erred in confirming the disallowance of interest expense of Rs. 59, 82, 299/- on the erroneous premises that the same pertains to capital work-in- progress. 3. That on facts and in law, the learned CIT(A) has grievously erred in confirming the disallowance of Rs. 3,16,834/- considering the same as prior period expenses. 4. The learned CIT(A) has grievously erred in law and on facts in confirming the disallowance Rs. 38, 15, 681/-. 5. That on facts and in law, the learned CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pro-rata basis i.e. proportionately on the basis of interest-bearing fund and interest free funds and made disallowance of ₹ 5,982,299/- and added the same to the total income of the assessee. 7. In appeal, Ld. CIT(Appeals) dismissed the appeal of the assessee by relying upon the order passed by his predecessor for assessment year 2004- 05. While dismissing the appeal of the assessee, Ld. CIT(Appeals) observed as under: 6.2 I have given considered the facts of the case, arguments advanced by the AR as also the observation of the AO. Similar disallowance made by the AO for the AY 2004-05 was upheld by my predecessor vide his order in appeal No.CAB/III-344/06-07 dated 18- 11-2008 by stating as follows: I have considered the submissions of the counsel and facts of the case. It is not in dispute that the appellant was having substantial capital work in progress as on 31.03.2004 i.e. Rs. 11.98 crores. AS per the amended provisions of section 36(l)(iii) interest on capital borrowed for the purpose of capital assets is to be capitalized till the asset is put to use. Admittedly the CWIP closing balance of Rs. 11.98 crores have not been put to use during the year and as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereas in the current year the AO has considered interest paid on secured loan also for such disallowance. It was submitted that the AO should be directed to restrict the disallowance only to the proportionate amount of interest paid on unsecured loan and not on secured loan. The appellant's submissions are not acceptable. It is a settled principal that principle of Res Judicata does not apply to income-tax assessments. Just because the AO in the earlier year erred in not making disallowance of interest paid on secured loans, does not mean that in the current year the AO is precluded from making such addition. This is owing to the fact that the basis on which the addition on account of interest paid on unsecured loan was confirmed by my predecessor, is also applicable to the interest paid on secured loans. 6.4 Hence addition made by the A.O. is upheld and this ground of appeal is dismissed. 8. The assessee is in appeal before us the against the aforesaid addition made by Ld. CIT(Appeals). Before us, the counsel for the assessee submitted that primarily, Ld. CIT(Appeals) has relied upon the order of his predecessor for assessment year 2004-05. However, the ITAT deleted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, whichever way one looks at it, there is no legally sustainable foundation for the presumption that borrowed funds were used in the capital work in progress. The CIT(A) himself admits that the funds are mixed and that the only basis is the nature of loan i.e. secured loan vs unsecured loan. In view of these discussions, as also bearing in mind entirety of the case, we uphold the plea of the assessee and delete the impugned disallowance of Rs40,65,595 on the admitted presumption that the secured loans were used in the capital work in progress. The assessee succeeds on this point. Ground no. 1 is thus allowed. 9.1 In the instant case, we observe that while the addition to CWIP was tune of ₹ 34,00,524/- but the assessee had own interest free of ₹ 29,72,49,635/- and hence the interest-free funds available with the assessee are far in excess of addition to CWIP. Respectfully following the decision of ITAT in the assessee s own case for assessment year 2004-05, we hereby allow the appeal of the assessee with respect to ground number 2. 10. In the result, ground number 2 of the assessee s appeal is allowed. Ground number 3: CIT(Appeals) erred in conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. In this case Hon'ble High Court has held as follows: Merely because an expense relates to a transaction of an earlier year it does not become a liability payable in the earlier year unless it can be said that the liability was determined and crystallized in the year in question on the basis of maintaining accounts on the mercantile basis. In each case where the accounts are maintained on mercantile basis, it has to be found in respect of any claim whether such liability was crystallized and quantified during the previous year as required to be adjusted in the books of account of that previous year. If any liability, though relating to the earlier year, depends upon making a demand and its acceptance by the assessee and such liability has been actually claimed and paid in the later previous years, it cannot be disallowed as deduction merely on the basis that accounts are maintained on mercantile basis and that it relates to a transaction of the previous year. The true profit and gain of a previous year are required to be computed for the purpose of determining tax liability. The basis of taxing income is accrual of income as well as actual receipt. If for want of neces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e following observations while allowing appeal of the assessee on similar issue: (A) Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in deleting the disallowance of Prior Period expenditure of Rs.67,88,591/-? . 2. Main question is sum of Rs.67.88 lacs(rounded off) which the Assessing Officer and CIT(Appeals) disallowed treating the expenditure as a prior period expenditure. The Tribunal reversed the findings of the Revenue authorities primarily on two grounds. Firstly, that the assessee being a company was charged uniformly for all years and would therefore, have no revenue implication of whether the expenditure was recognised in this assessment year or earlier year. The second ground was that in any case, the Revenue had recognised the prior period income. If that be so, according to the Tribunal, it would be unfair not to recognise the expenditure also of the prior period. 3. Having heard learned counsel for the parties and having perused the documents on record, we see no reason to interfere. Firstly, the expenditure of Rs.67.88 lacs is a fraction of the total income of the assessee company declared at Rs.105 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the depreciation on the said machineries amounting to ₹ 3,815,681/-. 15. In appeal before Ld. CIT(Appeals), the assessee submitted that it had submitted the documentary evidences certifying that the said machineries were purchased from 1994 to 2005, and the installation certificate from the general manager of the factory, certifying the installation and usage of the same was also furnished before the AO. Further, the assessee submitted installation certificate from an independent party was also produced before Ld. CIT(Appeals), which certified that the machines were installed and put to use during the relevant year. Though the said certificate from independent party was not produced before the AO during the course of present assessment, but the same was filed by the AO in the assessment of subsequent assessment years. The Ld. CIT(Appeals) however, dismissed this ground of appeal of the assessee with the following observations: 9.3 Thus, in spite of being given sufficient opportunity of being heard, the appellant failed to produce the relevant documents/details asked for by the AO during the course of assessment proceedings. Nothing has been submitted during the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idence furnished by the assessee with regard to certificate issued by an independent party has also been accepted by the Department in the assessment of the assessee for subsequent years and depreciation on such plant and machinery was allowed accordingly. Looking into the instant facts, we are of the considered view that the assessee is eligible to claim depreciation on such plant and machinery installed and put to use during the year under consideration. 18. In the result, ground number 4 of the assessee s appeal is allowed. Ground number 5: disallowance of 5% of travelling expenses of ₹ 1,494,780/- 19. The brief facts in relation to this ground of appeal are that during the course of assessment, the AO noted that the assessee had claimed travelling and conveyance expenses of ₹ 14,94,780/-, which is almost double as compared to the preceding assessment year. The AO asked the assessee to justify the increase in the expenses. During the assessment, the assessee furnished certain details and the AO noted that most of the expenses were incurred in cash. The AO held that since the assessee failed to furnish any concrete evidence in the form of bills, vouchers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gly, ground number 5 of the appeal of the assessee is dismissed. Ground number 6: disallowance of ₹ 50,000 out of the vehicle and maintenance expenses 23. The brief facts in relation to this ground of appeal are that the AO made ad hoc disallowance of ₹ 50,000 out of the upkeep and maintenance expenses. The AO noted that the assessee had claimed the vehicle upkeep and maintenance expenses of ₹ 1,235,413/-. On perusal of the details, the AO further noted that a part of these expenses were incurred in cash and were supported by self-made vouchers only. Therefore, the AO disallowed ₹ 50,000/- out of these expenses and added the same to the total income of the assessee. 24. In appeal, Ld. CIT(Appeals) dismissed the appeal of the assessee on this ground of appeal on the ground that disallowance made out of vehicle upkeep and maintenance expenses is already less than 5% of such expenses. Hence, the disallowance of ₹ 50,000/- by the AO is upheld. 25. Before us, the counsel for the assessee submitted that similar disallowance was deleted by the ITAT in assessee s own case for assessment year 2004-05 in ITA number 278/Ahd/2009 vide order dated 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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