TaxTMI 
TaxTMI 
2014 (9) TMI 1304
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....he shortage at 5 % on adhoc basis instead of allowing on actual basis which was @ 7.4 % for the year under consideration. That the aforesaid addition made is arbitrary and uncalled for and ought to be deleted on the facts of the case. 2. That on the facts and the circumstances of the case and in law the CIT Appeal has erred in restricting the disallowance at Rs. 50000/- on adhoc basis (as against total disallowance at Rs. 100000/- by Ld. AO) out of foreign traveling expenses of Rs.1392202/- incurred on foreign travels made by its employees/directors for the business of the appellant company. The entire disallowance deserves to be deleted. 3. That on the facts and the circumstances of the case and jn law the Ld. CIT Appeal has erred in not allowing 100% depreciation on water pollution machinery all aggregating to Rs. 1733407/-, alleging that these items do not qualify for 100% depreciation as per depreciation schedule attached with the Income Tax Rules. This is specifically allowed @ 100 % in the Depreciation Chart provided in the income Tax Rules. 4. That on the facts and the circumstances of the case and in law the Ld. CIT Appeal has erred in co....
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....uation for the opening stock thereby deleted the addition of Rs. 5 lakhs made on account of increase in work in progress without appreciating the fact that this is the first of commercial production and the first return filed by the assessee so the question of valuation of opening stock does not arise. 3. That the ld. CIT(A) has grossly erred in law as well as on the facts and circumstances of the case by mainly following the decision of Hon'ble Supreme Court in the case of Chellapalli Sugar Ltd. vs. CIT, 98 ITR 167, directing the AO to allow capitalization of pre-operative expenses amounting to Rs. 64,37 lakhs thereby allowed depreciating also thereupon whereas the facts of the case are clearly distinguishable from case law referred. 4. That on the facts and in the circumstances of the case, the ld. CIT(A) has erred by, without giving specific findings, restricting certain disallowance of pre-operative expenses for capitalization to 10%, 25% & 75% which resulted in excess allowable capitalization of pre-operative expenses at Rs. 4,12,289/- and depreciation of Rs. 1,03,072/- allowable thereupon without appreciating the facts and material brought on record by t....
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....quired to give the reasons for shortage. The assessee company vide letter dated 5th Nov. 96 submitted that the shortage was normal process loss. This process loss goes upto 12%. After considering the above reply the assessee company, vide order sheet entry dated 17th Dec. 96 was required to give the lower limit of shortage because in the reply the assessee has given the upper limit of shortage. The assessee company was further required to let me know the time taken for the process to be completed. In response to the above query, no reply has been filed. The assessee vide order sheet entry dated 26th Feb.98 was against requested to give me the shortage shown in subsequent years. In spite of above specific queries, no further reply has been filed for the shortages. In view of the above facts, I am left with no alternative but to estimate the shortage on the basis of subsequent results. In the assessment year 1997-98, the assessee company has shown production of 202.99 tons against consumption of 205.17. This gives shortage of only 1 percent. However, in the assessment year 96-97, the shortage shown is more than 10%. The onus was on the assessee company to have explained the shortages....
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.... the Act. In the given circumstances, it would be proper that the appellant is allowed 5% shortage of the total consumption on inputs used during the relevant period. This will take care of the inputs used by the appellant during the trial run also. The AO will work out the relief accordingly." 3.8 The ld. Counsel for the assessee contends that when the books of account of the assessee are audited, no specific discrepancy is found, it has been admitted that this being the first year of commercial production, the production loss is on higher side and trial run loss and work in progress stock has not been considered by the AO. Despite these positive findings, there is no justification for the ld. CIT(A) in holding that shortage has not been substantiated and hence the shortage can be estimated at 5% invoking the provision of Section 145 of the Act. Thus neither the order of the AO nor the order of the ld. CIT(A) give any convincing, reasonable or cogent basis to hold that the assessee company production loss was excessive, keeping in view the industry standard of 10% to 12% which has not been controverted. 3.9 The ld. DR supported the orders of the lower authorities. 3.10 We....
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...., 100% claim has been disallowed without appreciating the following observations. "8.6.2 In regard to the appellant's claim for 100% depreciation on Effluent Treatment Plant amounting to Rs. 17,3,407/-, it is seen that the claim was disallowed by the AO holding that such plant was not specified for 100% depreciations in Appendix-I of the I.T. Rules, 1962. Since appellant runs a process industry engaged in processing of yarn with use of chemicals etc. it is required to setup its system to control the water pollution under the Industrial Policy of Govt. of India. Therefore, it installed the Effluent Treatment Plant during the relevant period. In this regard, the A.R. of the appellant filed a certificate from Rajasthan Pollution Control Board dated 24-01-2000 No. F.12(2-39) RPCB/G-1/621. It is seen from the details filed by the appellant during the assessment proceedings that it incurred expenditure on the construction of Effluent Treatment Plant amounting to Rs. 17,33,407/-. However, the appellant failed to file any certificate from the independent agency to show that the plant was meeting the standard set out for controlling water pollution during the relevant ....
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.... production and the same could not have been done without proper installation of ETP which has not been disputed. Therefore, it is evident that the assessee had utilized the ETP for the purpose of business. This being so, in our considered view, the assessee is eligible for 100% depreciation on ETP as claimed. The granting of certificate is in the hands of the Pollution Control Board and the delay in giving the certificate cannot be the reason to deny the assessee's original claim. Thus in view thereof, the assessee is eligible for 100% depreciation on ETP. Therefore, the Ground No. 2 of the assessee is allowed. 6.1 Apropos Ground Nos. 4,5,6, and 7 which are smaller disallowances i.e. out of staff welfare expenditure, maintenance of transit house-cum-office, mess/ canteen expenses, entertainment expenses and out of telephone expenses. The assessee company is a Private Limited Company and these disallowances cannot be made in view of the decision of Hon'ble Gujarat High Court in the case of Sayaji Iron and Engg. Co.vs CIT, 253 ITR 749. Thus in view thereof, the Ground Nos, 4, 5, 6 and 7 of the assessee are allowed. 7.1 Adverting to remaining grounds of Revenue's ap....
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....nder appeal on April 10,1994. During the pre-operative period the appellant conducted trial runs of the plant and machinery and incurred various expenses including on raw material / wages/ electricity etc. The goods produced during trial run were sold and the total sale during pre-operative period was Rs. 1.16 crores. After set off of various expenditure incurred for the trial run against the sale /closing stock of trial run production, there was a net expense of Rs. 64.37 lacs which was mainly relatable to the cost of trial run of the plant and machinery and was capitalized by the appellant. The Assessing Officer has not allowed this capitalization of net expense of Rs. 64.37 lacs holding that the loss pertains to the trial run and cannot be capitalized. Without prejudice to anything contrary hereinabove, the Assessing Officer ought to have allowed the expenditure as Business loss u/s 28 of the Act. It is worthwhile to mention here that an expenditure may be either of revenue in nature or capital. If any expenditure is not capital in nature it ought to be allowed as revenue expenditure u/s 28 read with Section 37 of the I.T. Act, 1961. It may please be appreciate....
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.... not been defined, it should be construed in the sense which no commercial man would misunderstood. For this purpose, it would be necessary to ascertain the connotation of the expression in accordance with the normal rules of accountancy prevailing in commerce and industry. The accepted accountancy rule for determining cost of fixed assets is to include all expenditure necessary to bring such assets into existence and to put them in working condition." The ld. CIT(A) also relied on the following case laws. (i) Arvind Mills Ltd. vs. CIT, 112 ITR 64 (Guj.) (ii) Vallabh Glass Works Ltd. vs. CIT, 127 ITR 37 (Guj.) (iii) CIT vs. JMA Industries, 129 ITR 373 (Del.) 8.6 Aggrieved, the Revenue is before us. 8.7 The ld. DR relied on the order of the AO. 8.8 We have heard the rival contentions and perused the materials available on record. The Bench asked the query from the ld. DR as to how the case of Challapalli Sugars Ltd. vs. CIT (supra ) is not applicable to the assessee facts and the observation of the ld. CIT(A). The ld. DR could not controvert the findings of the ld. CIT(A). The genuineness of the pre- operative expenses is not in question. This ....
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....ted. 3. That on the facts and the circumstances of the case and in law the Ld. CIT Appeal has erred in restricting the disallowance of Rs. 20,000/ on adhoc basis out of inland travel expenses on traveling made by its employees for the purposes of business of the assessee. 4. That on the facts and the circumstances of the case and in law the Ld. CIT Appeal has erred in confirming the disallowance of Rs. 30,000/- out of Car maintenance expenses for the cars of the assessee company being used by its employees for the purposes of business of the assessee. 5. That on the facts and circumstances of the case and in law the Ld. CIT Appeal has erred in restricting the disallowance to Rs. 10,000/- on adhoc basis out of Miscellaneous Expenses. The entire expenditure of Rs. 18,000/- deserves to be deleted. 6. That on the facts and circumstances of the case and in law the Ld. CIT Appeal has erred in restricting the shortage at 5% on adhoc basis instead of allowing on actual basis which was @ 10.23% for the year under consideration. That the addition worked out by the ld. AO was Rs. 4713946/- presuming the shortage to be @ 2% arbitrary and without any....
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....ar also, no specific instance for rejection of book result has been indicated. As we have allowed the shortage claimed by the assessee in its process for the assessment year 1995-96 for the same reason, we allow the claim of the assessee in assessment year 1996-97 also. Thus Ground No. 6 of the assessee is allowed and Ground No. 1 of the Revenue is dismissed. 12.1 Apropos Ground Nos. 1 to 5 of the assessee regarding rent on transit- cum-office, foreign travels, inland travels, car maintenance and miscellaneous expenses. The assessee's grounds are allowed following our order for the assessment year 1995-96 by relying on the decision of Hon'ble Gujarat High Court in the case of Sayaji Iron and Engg. Co. vs CIT, (supra). Thus we see no infirmity in the order of the ld. CIT(A) which is upheld on this issue. Hence, Ground Nos. 1 to 5 of the assessee are allowed. 13.1 Coming to remaining grounds of the Revenue's appeal, the Ground No. 2 of the Revenue's appeal is similar to the facts and circumstances of the case to Ground No. 2 for the assessment year 1995-96 in respect of valuation of closing stock. Thus by following our order for the assessment year 1995-96, this....
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....order of the ld. CIT(A) which is upheld on this issue. Thus the Ground No. 4 of the Revenue is dismissed. In the result, the appeal of the assessee for assessment year 1996-97 is allowed and that of the Revenue is dismissed. 16.1 Now we take up the appeals of the assessee and the Revenue for the assessment year 1998-99. 16.2 The Revenue has raised the following grounds in its appeal for the assessment year 1998-99. "1. That the ld. CIT(A) has grossly erred on facts and circumstances of the case by without giving specific findings, deleting the addition of Rs. 6,24,000/- made on account of wastage of raw material claimed at 3.50% as against 2% wastage allowed by the AO without appreciating the fact that the assessee failed to discharge its onus of proving the same as no reply was filed by the assessee to the specific query in this regard and the assessee itself claimed wastage at 1% in the assessment year 1997-98. 2. That the ld. CIT(A) has grossly erred on facts and circumstances of the case by holding that the 'AO while making the impugned addition has not brought on record new facts" in spite of the fact that the AO observed the same as discussed in....
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....against total disallowance at Rs. 1,00,000/- by ld AO) out of traveling and conveyance expenses incurred by its employees/ directors for the business of the appellant company. The entire disallowance deserves to be deleted. 3. That on the facts and circumstances of the case and in law the ld. CIT(A) has erred in confirming the disallowance at Rs. 50,000/- on adhoc basis out of miscellaneous expenses." 19.1 Apropos Ground No. 1 of the assessee wherein the amount of Rs. 3.53 lacs was claimed as revenue expenditure by the assessee out of which the AO disallowed a sum of Rs. 50,000/- on adhoc basis. The ld. CIT(A) confirmed the addition made by the AO by following observation. "5.2 I have considered the facts of the case and submissions of the A.R. of the appellant carefully. The A.R. of the appellant has not controverted the fact that the relevant vouchers were not produced before the AO for verification. Therefore, under these circumstances the AO has rightly disallowed a part of such expenses accordingly. In view of this the disallowance made by the AO is hereby confirmed." 19.2 We have heard the rival contentions and perused the materials available on record....