TaxTMI 
TaxTMI 
2012 (12) TMI 1206
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.... the circumstances of the case, the Ld. CIT(A) is not justified in deleting the addition of Rs.1,10,37,70,526 made by the AO under the head Net Present Value(NPV) treating the same as Capital Expenditure. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in holding that payment of NPV does not bring any enduring benefit to the assessee whereas the assessee enjoys long run benefit for years together by raising minerals from the land for which NPV is paid." 3. At the outset the learned Counsel of the assessee submitted that this issue is covered in favour of the assessee by the decision of the ITAT, Cuttack Bench vide consolidated order dt.12.08.2011 in assessee's own case in ITA No.76,226 and 240/CTK/2010 for the AYs 2002-03,2003-04 and 200405, when the issue was with respect to deletion of addition under the head "Net Present Value" was considered by the Assessing Officer as capital and not revenue as claimed by the assessee. This issue was dealt with by the Tribunal in assessee's own case for the Assessment Year 2007-08 which was before the learned CIT(A) insofar as it was contended that the payment of such amount was for protection ....
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....the assessee. 7. As regards confirmation of the addition in respect of peripheral development expenses incurred for construction of BJB Women's Hostel amounting to Rs.1 Crore, the learned Counsel of the assessee argued that the peripheral development expenses is a name given to claim this expenditure as directed by the Hon'ble Chief Secretary to Govt. of Orissa and Chief Development Commissioner, Govt. of Orissa, Bhubaneswar was were authorised Govt. Officers insofar as incurring of such expenditure was to be controlled by the Govt. of Orissa, which the learned CIT(A) has differed to accept that the expenses were incurred for a College which is situated at Bhubaneswar and therefore had nothing to do with the peripheral development expenses. Therefore, he submitted that the claim was under the provisions of Section 37(1) when the authorities below tried to link the same on a finding whether it could be an expenditure not for the purpose of assessee's business insofar as it was not in conformity of the claiming of expenses as was claimed by other units holding mines such as NALCO, another Public Sector Undertaking when the Tribunal was pleased to allow this expenditure which decis....
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....true income for the impugned Assessment Year. In other words, the learned Counsel of the assessee argued that establishing a claim for finding as to what is the basis for establishing mercantile system of accounting has been incorporated in the law itself u/s.145A, Section 43B and one or two more Sections under the Capital gains taxation scheme. In other words, the I.T.Act completely does not allow to bring to tax incomes under the mercantile system of accounting when the learned CIT(A) confined his part sustaining the disallowance on the basis that the assessee was not able to establish as to how the income that had accrued in a particular year was to be accounted for in a subsequent year. The learned Counsel of the assessee argued that it was never the case of the assessee that the expenses had accrued when the emphasis was that the expenditure had crystallized in the impugned year when accrual took more than one year to take shape. 7.2. On the last issue being outstanding expenses, the learned Counsel of the assessee submitted that it is undisputed fact that it was not the endeavour of the Assessing Officer to contravene the provisions of Section 41(1) insofar as the assessee....
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.... satisfaction of the Assessing Officer was a loud thinking by the Assessing Officer and the learned CIT(A) that they could be brought to tax under the provisions of Section 41(1) against which the learned Counsel of the assessee as of now has cited case laws which indicate that the same cannot be done unilaterally. She submitted that if given an opportunity, the Assessing Officer will establish that even the purported sum of Rs.11.14 Crores paid against this liability was not documented or explained therefore the assessee admittedly did not have any details being a Government undertaking was fit for taxing income in this year only. She argued that on having writing off of bad debt at the instance of the assessee's debtors is claimed as revenue expenditure. Similarly a creditor not even identifiable by the assessee should be allowed by the Assessing Officer to be taxed as income. 9. We have heard the rival submissions. On careful consideration of the facts and circumstances of the case, we are inclined to hold that the peripheral development expenses have been incurred by the assessee as 100% Government of Orissa undertaking at the instance of the Government of Orissa to be incur....
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.... by the Assessing Officer as prior period expenses. The sustenance of part addition on account of prior period expenses have been dealt itemwise by him in his order, which we are inclined to reproduce as follows, has to be considered otherwise. (i) Pay & allowances - Rs. 968,561/- : This was stated to be arrear salary paid to Shri Barinder Singh. It is seen that the order of reinstatement was passed on 16.11.2006 in case of this officer and his leave for the preceding period was sanctioned on 16.03.2007 along with sanction of increments for the preceding years on that day. On the basis of these orders passed by the OMC, the liability had crystallized in financial year 2006-07 and in 2007-08; (ii) Arrear salary - Rs. 3,11,927/- :- Arrear salary of Rs. 3,11,927/- consisted of leave salaries only. A copy of the order from AG, Odisha was filed in respect of Dr. Umakanta Mishra amounting to Rs.l,34,610/-. Since this order is dated 10.08.2007, the amount is allowable as the liability crystallized during financial year 2007-08. In respect of the balance amount no details or evidences were furnished; (iii) Miscellaneous expenses:- Miscellaneous expenses relate to....
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....iture would have to be provided for after end of the Assessment Year if the accounts are to be balanced for approval by the share holders within six months of the close of the financial year. Therefore, a concept of claiming them as prior period expenses on the basis they having been actually incurred in the impugned Assessment Year has been declared as prior period expenses in accordance with the concept of mercantile system of accounting. In this view of the matter, we are of the considered view that the prior period expenses are bound to be allowed in the impugned Assessment Year having crystallized in the impugned Assessment Year. Therefore, the part confirmation of the addition made by the learned Assessing Officer on this count is therefore directed to be deleted. 9.2. With respect to the outstanding liabilities it has been submitted by the rival parties that due to incorporating the opening balance of the outstanding liabilities on the computer system it was nobody's case that either the liabilities are bogus or are not for the purpose of business of the assessee having been allowed as expenditure by the Assessing Officer in the years prior to it. Therefore, it was not th....
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....ircumstances of the case, the Ld. CIT(A) is not justified in ignoring the fact that Para 6.2 of AS-9 on "Revenue Recognition" issued by the ICAI specifically, inter alia, applies to industries dealing with minerals to which special conditions apply and thus AS-9 is squarely applicable in assessee's case and the application is mandatory in such cases. 5. On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in ignoring the fact that AS-2(revised) which deals with valuation of inventories does not apply to mineral ores to the extent that they are measured at net realizable value in accordance with well established practices in these industries. 6. On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in ignoring the fact that AS-9 is mandatory on revenue recognition applies to extraction of mineral ores also. 7. On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in placing reliance on the case laws mentioned in the appellate order in deleing the impugned addition as they were pronounced in different contexts and not similar to the case. 8. On the facts and in ....
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....e value when the net realizable value has been assumed to be always higher than the cost. Ground Nos.9 to 12 are with respect to the deletion of the disallowance of NPV amounting to Rs.4,69,45,200 being held by the Assessing Officer as capital in nature claimed by the assessee on revenue account. Ground No.13 to 16 are with respect to capitalization of ERP software expenses amounting to Rs.1,28,91,419 which has been held by the learned as revenue nature to be deleted from disallowance. 13. The learned CIT-DR initiating her arguments submitted that the Assessing Officer proceeded to bring on record the method of valuation by the assessee Company its closing stock by identifying that the assessee had not scrupulously followed the method of valuation of stock insofar as AS-9 issued by the Chartered Accountant Institute of India deals with recognition of revenue which could be extended for valuation of the closing stock though conservatively and the exclusion clause for valuation of closing stock as inscribed in AS-2 does not speak about the valuation of the inventory of net realizable value basis. She submitted that the Assessing Officer therefore took upon himself to derive the ne....
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.... 364 1,516,613.28 Banspani Plot - 0 - Banspani Camp Plot 4166.52 65 270,823.80 Barsuan Plot 4166.52 41 170,827.32 Nishikhal 4166.52 1008 4,199,852.16 Paradeep - 0 - Total - 7666 31,940,542.32 Closing stock valuation of Chrome Ore for 2007-08 Name Of the mines/Plot Rate Total Qty Total Value Kaliapani 8873 6531 57,949,563.00 S/Kaliapani 8873 157560 1,398,029,880.00 Sukrangi 8873 40661 360,785,053.00 Kalarangi 8873 11642 103,299,466.00 Kathpal 8873 17111 151,825,903.00 Banguar 8873 21929 194,576,017.00 Birasal 8873 3299 29,272,027.00 Boula 8873 823 7,302,479.00 COBP 9721 59716 580,499,236.00 Paradeep(Fines) 10495 600 6,297,000.00 Paradeep(CONCN) 11010 1068 11,758,680.00 Total 320940.00 2,901,595,304.00 Lime stone 1.0 146 146.00 GEM stone 1618627 2958757.00 Total Valuation Of closing stock derived by adopting the NRV as per discussion above. i. Iron Ore 1,837,333,863.00 ii ....
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....the basis of events occurring after the balance sheet date with respect to stock which is valued to determine the true and correct income for any specific Assessment Year to pay tax there upon. He submitted that the Assessing Officer has made the addition on the ground that the assessee is mandatorily required to follow Accounting Standard issued by the Institute of Chartered Accountants of India. Further as per the Accounting Standard-2 read with Accounting Standard-9, assessee should have valued the stock of ore at net releasable value which is higher than the cost as against the method adopted by the assessee of valuing the ore at cost or net realizable value whichever is lower. The reasoning has been given by the AO in para 1.3 on page 2 to 5. The learned CIT(A) has deleted the said addition and the reasoning has been given in Para 4.3 which can be summarized as under: 4.3. The assessee has been consistently valuing a method of valuation i.e. cost or net relizable value whichever is less for the purpose of valuing the closing stock. 4.3.1 That the method of valuation of closing stock is a matter entirely within the discretion of the assessee by making referenc....
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....ssing Officer is that the Assessing Officer can reject the method of accounting if he is not satisfied with the correctness or completeness of the accounts as per the relevant provisions of the Income Tax Act, 1961. In this regard it will be important to first test this contention of the Assessing Officer that AO can reject the method of accounting if he is not satisfied with the correctness or completeness of the accounts as per the relevant provisions of the Income Tax Act. There is a mandate under Section 44AA of the Act, whereby every person carrying on business or profession is required to keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of the Act. Further as per Section 145(1) of the Act, income chargeable under the head 'profit and gains from business or profession is to be computed in accordance with the system of accounting regularly employed by the assessee. Further in terms of Section 145(2) of the Act, the Central Government has been given power to notify in official gazette from time to time Accounting Standards to be followed by any class of assessee or in res....
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.... also wrong since there is no basis in the present case to reject the method of accounting being followed by the assessee. It is not the case of the Assessing Officer that the assessee has not kept and maintained the books of account. It is not the case of the AC that the system of accounting is not being regularly followed by the assessee. In view of the above, the Assessing Officer cannot invoke the provisions of Section 145(3) which gives the power to the AO to reject the books of account. 15. Having heard both parties on this issue we are of the considered view that the learned CIT(A) has given full credence to the finding of the Assessing Officer to the moot question whether it was the Assessing Officer's endeavor to adopt a particular method of valuation being fully aware of the fact that being a public sector undertaking it was to maintain its account on mercantile system of accounting when the cost determined by it to value its stock was in accordance with the principles of accounting standard followed by the assessee insofar as the learned Counsel of the assessee has submitted that the method of accounting has been prescribed by the I.T.Act,1961 u/s.145 and the Accounti....
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....ds prescribed under Section 145 and the effect thereof on the profit or loss. Therefore, he considered the nullity to be brought out by the Assessing Officer there being no material difference between the AS(IT-I) and AS(IT-II) notified by the Government and corresponding AS-1 and AS-5 of the Chartered Accountants Institute of India. Therefore, considering the totality of the facts and on the fact finding that whether the Assessing Officer was to adopt this valuation being higher than the cost input of the assessee for the subsequent year would be available to it for the purpose of at the time of the opening stock which would be sold whether the income being the realizable value to be reduced from the income rendered to tax by the assessee was not answered in the affirmative. We, therefore, do not find any infirmity in the order of the learned CIT(A) who has rightly deleted the addition of Rs.373.89 Crores on the facts and circumstances which have been elaborately brought out in his order, which needs no interference. We uphold the same. 16. On the second issue of deletion of the addition of Rs.4,69,45,200, we find that the issue stands covered in favour of the assessee by the d....