TaxTMI 
TaxTMI 
2017 (12) TMI 990
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 the circumstances of the case and in law the Ld. C1T(A) erred in deleting an addition of Rs. 1,00,97,203/- on account of estimation of gross profit which was declared by the assessee company at a very low rate." 6. "On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in deleting an addition of Rs. 9332/- without appreciation the fact that this payment to ESIC was for infringement of law and hence not allowance u/s 37 of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 facts and is hiding the truth of the matter. Section 32 of the Act prescribe that depreciation is admissible if an asset is owned by the assessee and used for the purposes of the business. It is an admitted position that unit at Gurgaon was not functioning during the year under consideration; it can thus be safely presumed that the assets installed and the factory building were not put to use for business purposes. The assessee has not furnished any reliable evidence as to what asset has been transferred, what was its use, when transferred, the mode of transfer, etc. And to which unit it was transferred and from when it was used in the other ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... appraising the evidences, in a unjustifiable manner he did not bother to note the bill nos. and notes in his order :- "But bill nos. is not mentioned and the basis of the amount credited have not been supplied". The bill nos. have been given as per page no. 16-22 attached. Therefore, his this observation is proven to be nonfactual. Regarding basis, the assessee was never confronted. It is now explained that the basis of the amount calculation of the individual machinery is cost as reduced by the depreciation earlier claimed. The bills were raised for the purposes of transporting from Gurgaon to Faridabad. It is argued here 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 relevant for the purposes of allowing depreciation of Gurgaon unit. The procedure laid down in the Act is that in the opening balance in block of assets new purchases are added and sales if any are reduced. The balance left is then considered for the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ance in block of assets new purchases are added and sales if any are reduced. The balance left is then considered for the purpose of calculating depreciation for the year. Under the law claim of the depreciation on the entire block of assets has been rightly made by the assessee and should have been allowed. The AO‟s contention that Gurgoan assets were not used therefore, depreciation should not be allowed is not in accordance with the provisions of the Act. I am in agreement with the contentions of the AR. Relief: Rs. 19,92,000/- Accordingly, Ground Nos. 1.1 and 1.2 are allowed." 9. The ld DR could not point out any infirmity in the order of the ld CIT(A). We also do not find and justification to nopt to agree with the order of the ld CIT (A). In view of this we confirm the finding of the ld CIT(A) and dismiss the ground No. 1 of the appeal of the Revenue. 10. Ground No. 2 of the appeal was with respect to disallowance of deprecation on electric fittings of Rs. 277343/- considering the rate of 15% instead of 25% claimed by the assessee. 11. The ld DR relied up on the order of the ld AO and ld AR relied up on the order of ld CIT (A). 12. The ld C....
X X X X Extracts X X X X
X X X X Extracts X X X X
....de submissions in its reply dated 26.08.2006 as under:- "Regarding depreciation on Electrical Installations:- It is submitted that generally all the installations are relating to the manufacturing activity and connected with the Plant and Machinery. This being so the Electrical installations also form part of Machinery and therefore, in entitled to 25% depreciation". In para 6.2 the Ld AO has confined himself to the Rules which gives 15% rate for the Electric Installations. Here he has grossly committed an error in not understanding that rules are made for implementing the Act. Their lordship in the case of CIT vs. Tajmahal Hotel (1971), 82 ITR 44 (SC), have very categorically laid down as under "The Indian Income-tax Rules, 1922, are meant only for the purpose of carrying out the provisions of the Act and they cannot take away what is conferred by the Act or whittle down its effect". In this case, the Hon‟ble court held that Sanitary and pipeline fittings which though fell under the category of furniture and fittings yet they were treated and accepted as plant and machinery for the purposes of allowing development rebate. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... facts the treatment of Electric Installations has to be considered at par with plant and machinery. However the AO allowed depreciation rate of 15% applicable to Furniture and Fitting on the ground that Electrical fitting include electrical wiring switches, sockets, other fittings and fans etc. On the other hand the AR contended that all the installations which include fixtures, wires, switch boards, starters and panel boards etc. These all are connected with the machinery and thus form integral part of the Plant and machinery. After careful consideration of the facts of the case, these fittings cannot be equated with normal electrical fittings. The items in question are related to plant and machinery and as such eligible for higher rate of depreciation i.e. 25%. The action of the AO is not upheld. Relief Rs. 2,77,343/-" 13. We have carefully considered the rival contentions and also perused the order of the ld CIT(A) which do not suffer from any infirmities. The ld DR could not show us any error in the order of the ld CIT(A). in the result we confirm the order of the ld CIT(A) ground No. 2 of the appeal of the Revenue. 14. Ground No. 3 was with respect to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e building was to be sold later on therefore, this expenditure was not required for the business. His such thinking is nothing but surmises and conjectures and is devoid of merits of the expenditure and also outside his scope of working as an Assessing Officer. Reliance is placed on S.A. Builders vs CIT 158 Taxmann 74 (SC). Which has laid down in para 34 as under:- "The revenue cannot put itself in the arm chair of the businessman or in a position of Board of Directors and assume the role to decide how much is a reasonable expenditure having regards to the circumstances of the case". Further the Hon‟ble Delhi High Court has also decided in favour of assessee in the case of CIT vs. Dalmia Cement (B) Ltd. 254 ITR 377 as under "The reasonableness of the expenditure could be gone into only for the purpose of determining whether, in fact, the amount was spent. Once it is established that there was nexus between the expenditure and the purpose of the business, the Revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having rega....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd 14.12.2006 has stated that "dies and tools" were sold during the year at Rs. 1.32 crore and some parts had become scrap. On verification, it is found that out of "Tools and Dies" shown in the opening stock at Rs.34,34,719/-, the following items have not been sold:- Description amount Checker Comp R. FR DR Rs.4,67,257/- CheckerComp R. LR. RDR Rs.4,30,134/- Total Rs.8,97,391/- The assessee‟s explanation that Dies and Tools worth Rs.8,97,391/- have become scrap, which are admittedly not accounted for as sales in the books, is devoid of merit, as the explanation is not supported with evidence. Accordingly, an addition of Rs.8,97,391/- is being made i.e. to the extent profit is understated. Accordingly, an addition of Rs.8,97,391/- is being made to the income declared." 14. The AR filed detailed written submissions in this regard which are as under: "The assessee manufacturers 'Dies and Tools‟ as per requirements of the customers and on completion the sales invoices are raised. Such kind of the work was shown in progress on 31.03.2003 amounting to Rs. 34,34,718 for 27 items. Kindly refer paper book page no 23. Durin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the manufacturing was started. This loss occurred may kindly be accepted in view of the documentary evidences enclosed". In support of the contention that Honda Siel made arrangements with Rikenkaiki Company Ltd., Japan the copy of the agreement dated 28.04.2004 was also enclosed. In support of the contention that Honda Siel made arrangements with Rikenkaiki Company Ltd., Japan the copy of the agreement dated 28.04.2004 was also enclosed. Further to support the contention that the manufacturing of these two tools were stopped by Honda Siel copy of mail sent on 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-s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lts and G.P rates which have fallen in the F.Ys 05-06 and 07-8 relevant for A.Y 06-07 and 08-09 were accepted by the AO in the scrutiny assessment orders u/s 143(3) dated 28.11.2008 and 30.12.10 respectively * The AO has not properly appreciated the evidence brought on record and the submissions of AR are not taken in full while addressing the issue. 21. I 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 ari....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s letter dated 27.09.2006 has stated that in para no 4 that as per thumb rule the scrap in such industries is not less than 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ingement. 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 Rs. 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 Rs. 5 lacs made by the ld Assessing Officer holding that it is extremely high as compared to previous year. The above disallowance was de....