THE INDORE DEVLOPMENT AUTHORITY, v. THE ITO 3(2),

ITA 203/IND/2008 | misc
Pronouncement Date: 31-08-2010 | Result: Partly Allowed

Appeal Details

RSA Number 20322714 RSA 2008
Assessee PAN AAAJI0103J
Bench Indore
Appeal Number ITA 203/IND/2008
Duration Of Justice 2 year(s) 4 month(s) 9 day(s)
Appellant THE INDORE DEVLOPMENT AUTHORITY,
Respondent THE ITO 3(2),
Appeal Type Income Tax Appeal
Pronouncement Date 31-08-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted DB
Tribunal Order Date 31-08-2010
Date Of Final Hearing 03-08-2010
Next Hearing Date 03-08-2010
Assessment Year misc
Appeal Filed On 21-04-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH INDORE BEFORE SHRI JOGINDER SINGH J.M. AND SHRI B .R.KAUSHIK A.M. PAN. NO. AAAJI0103J I. T. A. NOS. 203 433 & 516/IND/2008 A.YS. 2003-04 2004-05 & 2005-06 INDORE DEVELOPMENT AUTHORITY ITO 5(3) C/O ANIL KAMAL GARG & CO. C.A. VS INDORE. 1 ST FLOOR KUBER PALACE 35 JAORA COMPOUND INDORE APPELLANT RESPONDENT APPELLANT BY : SHRI ANIL KAMAL GARG C. A. RESPONDENT BY : SHRI K.K.SINGH CIT DR O R D E R PER B.R.KAUSHIK ACCOUNTANT MEMBER: THESE THREE APPEALS FILED BY THE ASSESSEE INVOLVE COMMON ISSUES AND THEREFORE THE SAME ARE DECIDED BY THIS COMMON ORDER. I.T.A.NO. 203/IND/2008 A.Y. 2003-04 : - 2 - 2 2. THE ASSESSEE HAS FILED THIS APPEAL AGAINST THE OR DER DATED 17 TH JANUARY 2008 OF THE LD. CIT(A). 3. GROUND NOS. 1 & 2 OF THE APPEAL ARE AGAINST ENHAN CEMENT OF THE INCOME BY THE LD. CIT(A). 4. THE ASSESSEE HAS OBJECTED TO THE ACTION OF THE LD. CIT(A) IN DISALLOWING THE ENTIRE CLAIM OF DEPRECIATION EXCEPT THE DEPRECIATION ALLOWABLE ON THE ASSETS ACQUIRED DURING THE YEAR. T HE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF RS. 26 49 215/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF REJECTION OF CLAIM OF DEPRECI ATION. HOWEVER THE LD. CIT(A) HELD THAT THE ASSESSEE WAS NOT ENTITLED TO A NY DEPRECIATION BECAUSE IT HAD FAILED TO PRODUCE THE FIXED ASSETS REGISTER AND HAD NOT FURNISHED WORKING OF DEPRECIATION FROM THE DATE OF ACQUISITION OF THE FIXED ASSETS. HE THEREFORE DISALLOWED THE ENTIRE CLAIM OF DEPRECIATION MADE BY THE ASSESSEE WHICH HAS BEEN CHALLENGED AS PER GROUNDS NO.1 & 2. 5. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A ST ATUTORY AUTHORITY ESTABLISHED BY THE GOVERNMENT OF MADHYA PRADESH FO R DEVELOPMENT AND PLANNING OF INDORE CITY. THE MAIN OBJECT OF THE IND ORE DEVELOPMENT - 3 - 3 AUTHORITY ( FOR SHORT IDA ) IS TO IMPLEMENT PROPO SAL INTO DEVELOPMENT PLANT PREPARE ONE OR MORE TOWN DEVELOPMENT SCHEME AND ACQUISITION AND DEVELOPMENT OF LAND FOR THE PURPOSE OF EXPANSION OR IMPROVEMENT OF THE NOTIFIED AREA. SINCE THE AUTHORITY WAS CONSTITUTED BY STATUTORY ENACTMENT ITS INCOME WAS EXEMPT FROM TAX AS PER PROVISIONS OF SEC TION 10(20A) OF THE INCOME-TAX ACT 1961 UP TO ASSESSMENT YEAR 2002-03 . THE INCOME BECAME TAXABLE W.E.F. 1 ST APRIL 2003 BECAUSE OF THE OMISSION OF THE AFOREST ATED SECTION 10(20A) BY THE FINANCE ACT 2002. THE FIRS T RETURN OF INCOME WAS ACCORDINGLY FILED BY THE ASSESSEE FOR ASSESSMENT Y EAR 2003-04 ON 30 TH NOVEMBER 2003 DECLARING TOTAL INCOME OF RS. 7 98 3 00/-. THE ASSESSMENT WAS FINALIZED AT A TOTAL INCOME OF RS. 72 00 515/- AS PER ORDER U/S 143(3) DATED 28 TH MARCH 2006. THE AO RESTRICTED THE CLAIM OF THE AS SESSEE FOR DEPRECIATION TO RS. 37 42 506/- AS AGAINST RS. 63 9 1 721/- DEBITED BY THE ASSESSEE TO ITS PROFIT AND LOSS ACCOUNT. THIS RESUL TED INTO ADDITION OF RS. 26 49 215/- TO THE RETURN OF INCOME OF THE ASSESSEE . THE ASSESSEE SUBMITTED THAT NO DEPRECIATION HAD BEEN ALLOWED TO IT SO FAR AND THEREFORE THE ACT5UAL COT OF BLOCK OF ASSETS WAS TO BE TAKEN AS W.D.V. FO R THE PURPOSE OF ALLOWING DEPRECIATION FOR ASSESSMENT YEAR 2003-04 IN VIEW OF THE DECISION IN THE CASE - 4 - 4 OF DY. CIT VS. GUJARAT STATE FERTILIZERS COMPANY LI MITED 68 TTJ 62 (AHM). THE AO WAS HOWEVER OF THE OPINION THAT THE INCOME OF THE ASSESSEE WAS EXEMPT UP TO ASSESSMENT YEAR 2002-03 AND THE NO TIONAL DEPRECIATION IS TO BE TAKEN INTO CONSIDERATION FOR DETERMINING THE W. D. V. OF THE ASSETS FOR THE PURPOSE OF ALLOWING DEPRECIATION FOR ASSESSMENT YEAR 2003-04 AND THE CASE LAWS CITED BY THE ASSESSEE WERE NOT APPLICABLE TO ITS CASE BECAUSE THE FINANCE ACT 2001 HAS INSERTED EXPLANATION 5 TO SEC TION 231 WHEREBY IT HAS BEEN CLARIFIED AND DECLARED THAT THE PROVISIONS OF SECTION 32(1) OF THE INCOME-TAX ACT 1961 WOULD APPLY WHETHER OR NOT TH E ASSESSEE HAD CLAIMED THE DEDUCTION IN RESPECT OF DEPRECIATION IN COMPUTI NG ITS TOTAL INCOME. THE AO THEREFORE HELD THAT THE W.D.V. AS ON 1 ST APRIL 2002 WAS REQUIRED TO BE TAKEN AS THE COST OF THE ASSETS AS REDUCED BY TH E DEPRECIATION ADMISSIBLE UNDER THE INCOME-TAX RULES 1962. THE AO ALSO HELD THAT THE ASSESSEE HAD CLAIMED DEPRECIATION @ 50 % ON CERTAIN ASSETS INCLU DING THE SAME IN THE COST OF VEHICLES BUT THE DEPRECIATION ON SUCH ASSETS WER E ADMISSIBLE @ 20% AS PER ANNEXURE 1 TO ASSESSMENT ORDER. THE AO ACCORDIN GLY WORKED OUT DEPRECIATION FOR ASSESSMENT YEAR 2003-04 AT RS. 37 42 506/- AND REJECTED THE BALANCE CLAIM OF RS. 26 49 215/-. - 5 - 5 6. DURING THE COURSE OF HEARING OF THE APPEAL THE LD. CIT(A) REQUIRED THE ASSESSEE TO FURNISH THE REQUIRED DETAI LS WHICH THE ASSESSEE FAILED TO PRODUCE BEFORE HIM. THE LD. CIT(A) ALSO O BSERVED THAT THE AUDITORS IN SCHEDULE XII OF ACCOUNTING POLICY AND NOTES ON ACCOUNTS ANNEXED TO THE TAX AUDIT REPORT IN PARA 3(II) REMARKED THAT THE F IXED ASSETS WERE TAKEN AT COST IN THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSE SSEE AND DEPRECIATION HAD NOT BEEN CHARGED ON THE FIXED ASSETS UP TO FINANCIA L YEAR 2001-02 IT WAS THEREFORE NOT POSSIBLE FOR THE AUDITOR TO CALCULAT E DEPRECIATION ON INDIVIDUAL AND FIXED ASSETS FOR EARLIER YEARS AND ASCERTAIN TH EIR CURRENT W.D.V. AS ON 1 ST APRIL 2002 AS PER THE INCOME-TAX ACT 1961. THE A UDITORS THEREFORE ADOPTED THE VALUE OF FIXED ASSETS AS ON 1 ST APRIL 2002 AS APPEARING IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AS CERTIFIED BY T HE MANAGEMENT FOR THE PURPOSE OF CHARGING DEPRECIATION WHILE PREPARING TH E AUDIT REPORT IN FORM NO. 3-CD. IN VIEW OF FOREGOING OBSERVATIONS OF THE AUDITORS THE LD. CIT(A) REQUIRED THE ASSESSEE TO FURNISH THE FIXED A SSETS SCHEDULE SHOWING WORKING OF DEPRECIATION FROM THE DATE OF ACQUISITIO N THEREOF. THE ASSESSEE SUBMITTED THAT THE REMARKS OF THE AUDITORS WERE ONL Y A STATEMENT OF FACTS WHICH IS ACCEPTED BY THE ASSESSEE BUT ADVERSE INFE RENCE SHOULD NOT BE DRAWN - 6 - 6 AGAINST THE ASSESSEE BECAUSE THE BOOK VALUE OF FIX ED ASSETS AS ON 1 ST APRIL 2002 WAS REQUIRED TO BE TAKEN AS WRITTEN DOWN VALU E FOR THE PURPOSE OF COMPUTATION OF DEPRECIATION UNDER THE INCOME TAX LA WS IN VIEW OF THE DECISIONS IN THE FOLLOWING CASES :- (I) ACIT VS. GUJARAT STATE FERTILIZERS COMPANY LIMITED 68 TTJ 862. (II) CIT VS. J.K.INDUSTRIES LIMITED (2000) 241 ITR 537. (III) CIT VS. MAHENDRA MILLS (2000) 159 CTR (S.C.) 381 (IV) CIT VS. ARUN TEXTILE (1991) 192 ITR 700 (GUJ) (V) G.C.ASSOCIATES VS. DY. CIT (2003) 80 TTJ (PUNE) 539. (VI) CIT VS. DHARAMPUR LEATHER CO.LTD. (1966) 60 ITR 165 (S.C.). 7. THE LD. CIT(A) HOWEVER REJECTED THE SUBMISSIONS O F THE ASSESSEE AND ISSUED ENHANCEMENT NOTICE BECAUSE HE WAS OF TH E OPINION THAT IN ABSENCE OF FIXED ASSETS REGISTER AND OTHER RELEVANT DETAILS IT WAS NOT POSSIBLE TO WORK OUT THE WRITTEN DOWN VALUE OF THE ASSETS AS ON 1 ST APRIL 2002 FOR THE - 7 - 7 PURPOSE OF COMPUTATION OF DEPRECIATION UNDER THE IN COME TAX LAW. HE THEREFORE HELD THAT THE ENTIRE CLAIM OF DEPRECIATI ON MADE BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2003-04 WAS LIABLE TO BE REJECT ED IN VIEW OF THE I.T.A.T. INDORE BENCH DECISION IN THE CASES OF KRI SHI UPAJ MANDI SAMITI UNHALE VS. ITO WD 2(2) UJJAIN KRISHI UPAJ MANDI S AMITI AKODIYA VS. ITO SHUJALPUR IN APPEAL NO. 457/IND/2006 FOR ASSE SSMENT YEAR 2003-04 WHEREIN ON SIMILAR FACTS IT HAS BEEN HELD THAT THE DEPRECIATION WAS TO BE ALLOWED ON THE WRITTEN DOWN VALUE OF THE ASSETS. TH E LD. CIT(A) ALSO HELD THAT IN ABSENCE OF ANY DETAILS OR DOCUMENTARY EVIDE NCE THE SUBMISSION OF THE ASSESSEE THAT THE DEPRECIATION @ 50 % WAS ADMIS SIBLE ON NEW COMMERCIAL VEHICLES ACQUIRED ON OR AFTER 1 ST APRIL 2001 BUT BEFORE 1 ST DAY OF APRIL 2002 CANNOT BE ACCEPTED. HE THEREFORE REF USED TO INTERFERE WITH THE DECISION OF THE AO IN RESTRICTING THE DEPRECIATION @ 20 % ON THE VEHICLES PURCHASED ON OR AFTER 1 ST APRIL 2001 AND BEFORE 1 ST APRIL 2002. 8. DURING THE COURSE OF HEARING OF THE APPEAL THE ASS ESSEE INVITED ATTENTION TO PAPER BOOK DATED 29 TH JULY 2010 AND THE SYNOPSIS OF SUBMISSIONS. BRIEFLY STATED THE LEARNED COUNSEL RE ITERATED THE SUBMISSIONS TAKEN BEFORE THE LOWER AUTHORITIES AND MAINTAINED T HAT SINCE THE ASSESSEE WAS - 8 - 8 NOT ASSESSED TO TAX UP TO ASSESSMENT YEAR 2002-03 THE EXPLANATION 5 TO SECTION 32(1) WAS NOT APPLICABLE TO ITS CASE UP TO ASSESSMENT YEAR 2002-03 AND ITS CLAIM OF DEPRECIATION ON THE ACTUAL COST OF ASSETS SHOULD BE ALLOWED. IT WAS FURTHER CONTENDED THAT SINCE THE DECISION OF THE I.T.A.T. INDORE BENCH INDORE IN THE CASE OF KRISHI UPAJ MANDI SAM ITI UNHALE VS. ITO (SUPRA) WAS RECEIVED PRIOR TO 6 TH JULY 2007 THE PROVISIONS OF SECTION 43(6) OF THE INCOME-TAX ACT 1961 DEFINING THE W.D.V. AS PER AMENDMENT BY THE FINANCE ACT 2008 WITH RETROSPECTIVE EFFECT FROM 1 ST APRIL 2003 HAS NOT BEEN CONSIDERED BY THE HON'BLE I.T.A.T. ACCORDING TO THE LEARNED COUNSEL THE PROVISIONS OF EXPLANATION 6 CLAUSE (B) OF SECT ION 43(6) OF THE INCOME- TAX ACT 1961 MADE IT VERY CLEAR THAT WHERE AN ASS ESSEE WAS NOT REQUIRED TO COMPUTE HIS TOTAL INCOME FOR THE PURPOSES OF THIS A CT FOR ANY PREVIOUS YEAR OR YEARS PRECEDING THE PREVIOUS YEAR RELEVANT TO TH E ASSESSMENT YEAR UNDER CONSIDERATION THE TOTAL AMOUNT OF DEPRECIATION ON SUCH ASSETS PROVIDED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE IN RESPECT OF SUCH PREVIOUS YEAR OR YEARS PRECEDING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION SHALL BE DEEMED TO BE THE DEPRECIATION ACTUALLY ALL OWED UNDER THIS ACT. ACCORDING TO THE LEARNED COUNSEL THE EFFECT OF THE EXPLANATION 6(B) TO - 9 - 9 SECTION 43(6) OF THE ACT WAS THAT IN THE CASE OF AN ASSESSEE WHOSE INCOME WAS EXEMPT IN EARLIER YEARS THE DEPRECIATION HAS T O BE COMPUTED ON THE BASIS OF THE ACTUAL COST OF THE ASSETS AS REDUCED BY THE AMOUNT OF DEPRECIATION PROVIDED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. H E THEREFORE SUBMITTED THAT SINCE THE ASSESSEE HAD NOT PROVIDED FOR DEPREC IATION IN ITS BOOKS OF ACCOUNT UPTO 31 ST MARCH 2002 THE W.D.V. OF THE ASSET AS ON 1 ST APRIL 2002 SHOULD BE TAKEN AS THE ACTUAL COST OF THE ASS ETS AND THE CLAIM OF THE DEPRECIATION FOR RS. 63 91 720/- SHOULD BE ALLOWED. THE LEARNED COUNSEL INVITED REFERENCE TO THE C.B.D.T.CIRCULAR NO. 1 DAT ED 27 TH MARCH 2009 A COPY OF WHICH IS PLACED AT PAGES 88 TO 90 OF THE PA PER BOOK OF THE ASSESSEE. IT WAS CONTENDED THAT AS PER PARA 14.2 OF THE C.B.D .T. CIRCULAR THE TOTAL AMOUNT OF DEPRECIATION ON SUCH ASSETS PROVIDED IN T HE BOOKS OF ACCOUNT IN RESPECT OF SUCH PREVIOUS YEAR OR YEARS PROCEEDING T HE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION SHALL BE DEEMED TO BE THE DEPRECIATION ACTUALLY ALLOWED UNDER THE INCOME TAX ACT FOR THE PURPOSE OF SUB-SECTION (6) OF SECTION 43. ACCORDING TO THE LD . COUNSEL IT WAS ABUNDANTLY CLEAR THAT THE BOARD WAS OF THE VIEW THA T IN THE CASE OF ASSESSEE WHOSE INCOME WAS PREVIOUSLY EXEMPT FROM TAX DEPREC IATION SHOULD NOT BE - 10 - 10 ALLOWED ON THE ORIGINAL COST HOWEVER IT HAS BEEN F URTHER CLARIFIED THAT IN SUCH CASES DEPRECIATION PROVIDED IN THE BOOKS OF A CCOUNT SHOULD BE TREATED AS DEPRECIATION ACTUALLY ALLOWED AND DEPRECIATION W HICH HAS NOT BEEN PROVIDED IN THE BOOKS BY THE ASSESSEE EARLIER EXEMP T FROM TAX COULD NOT BE REGARDED AS DEPRECIATION ALLOWED TO THE ASSESSEE FO R THE PURPOSE OF COMPUTING W.D.V. U/S 43(6) OF THE INCOME-TAX ACT 1 961. THE LEARNED COUNSEL ALSO POINTED OUT THAT THE AMENDMENT TO THE ACT BY INSERTION OF EXPLANATION 6 TO SECTION 43(6) WAS BROUGHT BY THE FINANCE ACT 2008 WITH RETROSPECTIVE EFFECT FROM 1.4.2003 TO NULLIFY THE D ECISION OF HON'BLE I.T.A.T. RAJKOT BENCH IN THE CASE OF KANDLA PORT TRUST VS. A CIT (2006) 104 TTJ (RAJ) 396 THE COPY OF WHICH IS PLACED AT PAGES 67 TO 76 OF THE PAPER BOOK HE FURTHER SUBMITTED THAT THE DIVISION BENCH OF THE HON'BLE I.T.A.T. INDORE IN THE CASE OF KRISHI UPAJ MANDI SAMITI VS. DY. CIT (SUPRA) HAS REFERRED TO THE DECISION OF HON'BLE I.T.A.T. RAJKOT BENCH IN TH E CASE OF KANDLA PORT TRUST VS. ACIT (2006) 104 TTJ (RAJ) 396 BUT IT HAS NOT CONSIDERED THE RETROSPECTIVE AMENDMENT TO EXPLANATION 6 TO SECTION 43(6) AND THE BOARDS CIRCULAR NO.1 DATED 27 TH MARCH 2009 BECAUSE THE AFORESTATED DECISION IN T HE CASE OF KRISHI UPAJ MANDI SAMITI WAS RENDERED PRIOR TO THE AMENDMENT. THE - 11 - 11 LEARNED COUNSEL ALSO SUBMITTED THAT C.B.D.T. CIRCUL AR DATED 27 TH MARCH 2009 WAS BIDING ON THE DEPARTMENTAL AUTHORITIES IN VIEW OF THE DECISIONS IN THE CASE OF K. P. VARGHESE VS. ITO 24 CTR ( S. C.) 358 AND UCO BANK VS. CIT (1999) 237 ITR 889 (S.C.) AN THAT THE LOWER AUTHORITIES WERE THEREFORE NOT CORRECT IN REJECTING THE CLAIM OF TH E ASSESSEE. 9. THE LD. CIT DR SUBMITTED THAT THE ASSESSEE WAS NOT LIABLE TO TAX UP TO ASSESSMENT YEAR 2002-03 BUT THE EFFECT OF EXPLA NATION 6 TO SECTION 43(6) OF THE INCOME-TAX ACT 1961 WAS THAT THE DEPRECIAT ION ALLOWABLE AS PER INCOME TAX RULES 1962 WAS TO BE CONSIDERED AS ALL OWED AND W.D.V. OF THE ASSETS WAS TO BE CONSIDERED AFTER REDUCING THE DEEM ED DEPRECIATION. HE SUBMITTED THAT THE VIEW OF THE LEARNED COUNSEL WAS NOT CORRECT IN SO FAR AS HE HAS SUBMITTED THAT THE DEPRECIATION REQUIRED TO BE REDUCED FROM THE ACTUAL COST WAS THE DEPRECIATION AS PROVIDED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AND IN CASE THE DEPRECIATION HAD NOT BEEN PROVIDED IN THE BOOKS OF ACCOUNT THE ACTUAL COST SHOULD BE TAKEN AS THE WRI TTEN DOWN VALUE AS ON 1 ST APRIL 2002. HE ALSO SUBMITTED THAT SINCE THE ISSUE HAS BEEN DULY CONSIDERED BY THIS BENCH AND THE DECISION IN THE CASE OF KRISH I UPAJ MANDI (SUPRA) IS IN ACCORDANCE WITH THE RELEVANT PROVISIONS OF THE ACT AMENDED RETROSPECTIVELY - 12 - 12 THE DECISIONS RELIED UPON BY THE LEARNED COUNSEL A RE OF NO HELP TO THE ASSESSEE. HE ALSO SUBMITTED THAT THE ASSESSEE FAILE D TO FILE THE RELEVANT DETAILS IN RESPECT OF THE ASSETS ON WHICH THE DEPRECIATION HAS BEEN CLAIMED BY IT THEREFORE IN ABSENCE OF ANY EVIDENCE AS TO THE ACT UAL COST OF THE ASSETS AND THE DATE ON WHICH THE ASSETS WERE ACQUIRED AND PUT TO USE IT WAS NOT POSSIBLE TO ALLOW ANY DEPRECIATION AND THE LD. CIT(A) HAS RI GHTLY REJECTED THE ENTIRE CLAIM OF THE DEPRECIATION MADE BY THE ASSESSEE. IT WAS ALSO CONTENDED THAT THE FACTS WERE WITHIN THE SPECIAL KNOWLEDGE OF THE ASSESSEE AND BEING A STATUTORY AUTHORITY IT WAS REQUIRED TO MAINTAIN PR OPER RECORDS AND BOOKS OF ACCOUNT WHICH WERE ALSO LIABLE TO BE STATUTORILY A UDITED AND THEREFORE THE PLEA OF THE ASSESSEE THAT THE RELEVANT DETAILS WERE NOT AVAILABLE WITH IT CANNOT BE ACCEPTED TO BE CORRECT. THE LD. SENIOR D EPARTMENTAL REPRESENTATIVE ALSO POINTED OUT THAT AS PER THE CIR CULAR OF THE C.B .D.T. RELIED UPON BY THE ASSESSEE THE DEPRECIATION IS DE EMED TO BE ALLOWED AS PER INCOME TAX RULES AND IT CANNOT BE LEFT OPEN TO THE ASSESSEE THAT THE DEPRECIATION SHOULD BE PROVIDED IN ITS BOOKS OF ACC OUNT IN ANY MANNER IT LIKES OR IT SHOULD NOT BE PROVIDE AT ALL BECAUSE I N THAT CASE THE ASSESSEES MAINTAINING PROPER BOOKS OF ACCOUNT AND PROVIDING D EPRECIATION AS PER - 13 - 13 INCOME TAX RULES WOULD BE PUT TO DISADVANTAGE AND T HE ASSESSEE NOT MAINTAINING PROPER BOOKS OF ACCOUNT AND NOT PROVIDI NG DEPRECIATION FOR THE ASSESSMENT YEAR FOR WHICH ITS INCOME WAS EXEMPT WO ULD BE GETTING UNDUE ADVANTAGE AND THE UNREASONABLE INTERPRETATION OF TH E CIRCULAR AND THE PROVISIONS OF EXPLANATION 6 OF SECTION 43(6) OF THE I.T. ACT SHOULD NOT BE ACCEPTED. HE ACCORDINGLY SUPPORTED THE ORDER OF THE LD. CIT(A) IN ENHANCING THE INCOME OF THE ASSESSEE BY REJECTING T HE ENTIRE CLAIM OF DEPRECIATION OF RS. 63 91 721/- AS AGAINST THE DEPR ECIATION OF RS. 37 53 000/- ALLOWED BY THE ASSESSING OFFICER. 10. WE HAVE CAREFULLY CONSIDERED THE ISSUE IN VIEW OF T HE ORDERS OF THE LOWER AUTHORITIES RIVAL SUBMISSIONS AND MATERIAL P LACED ON RECORD. IN VIEW OF THE AMENDMENT TO THE PROVISIONS OF THE RELEVANT SECTIONS OF THE ACT DISCUSSED ABOVE WITH DUE RESPECT THE DECISIONS CI TED BY THE LEARNED COUNSEL FOR THE ASSESSEE ARE OF NO HELP TO THE ASSE SSEE BECAUSE ADMITTEDLY THE ASSESSEE WAS NOT LIABLE TO TAX UP TO ASSESSMENT YEAR 2002-03 AND ITS W.D.V. AS ON 1 ST APRIL 2003 IS TO BE TAKEN AS PER THE PROVISIONS OF EXEMPTION 6 TO SECTION 43(6) OF THE ACT WHEREIN TH E LEGISLATOR HAS CLARIFIED ITS INTENT THAT IN CASE OF THE ASSESSEES WHOSE INCO ME WAS EXEMPT FROM TAX UP - 14 - 14 TO ASSESSMENT YEAR 2002-03 THE W.D.V. OF THE ASSET S IN THEIR CASES IS TO BE TAKEN AFTER REDUCING FROM THE ACTUAL COST OF ASSETS THE DEPRECIATION DEEMED TO HAVE BEEN ALLOWED AS PER INCOME-TAX ACT 1961. T HE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT IT SHOULD BE TAKEN AS PROVIDED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE IS THEREFORE NOT CONSIDERED CORRECT BECAUSE THE W.D.V. AS PER INCOME-TAX ACT 1961 WOULD BE AR RIVED AT ONLY AFTER ALLOWING DEPRECIATION AS PER INCOME TAX RULES AND T HE RATES APPLICABLE FOR ALLOWING DEDUCTION OF DEPRECIATION ON ASSETS WOULD BE THE RATES PRESCRIBED THEREIN. THE DEPRECIATION PROVIDED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT IF IT IS NOT IN ACCORDANCE WITH THE INCOME TAX RULES 1962 WOULD NOT BE REQUIRED TO BE TAKEN INTO CONSIDERATION AND THE DEE MED DEPRECIATION WOULD BE WORKED OUT AS IF THE DEDUCTION OF DEPRECIATION W ERE TO BE ALLOWED HAD THE ASSESSEE BEEN LIABLE TO INCOME TAX UP TO ASSESSMENT YEAR 2002-03. IN OUR CONSIDERED OPINION CIRCULAR NO. 1 DATED 27 TH MARCH 2009 OF THE C.B.D.T. HAS NOT BEEN CORRECTLY APPRECIATED BY THE LEARNED C OUNSEL IN SO FAR AS IT PROVIDES FOR DEPRECIATION AS PER PROVISIONS OF THE INCOME-TAX ACT 1961 AND IT CANNOT BE INTERPRETED IN A MANNER SO AS TO TAKE THE ACTUAL COST OF THE ASSETS AS W.D.V. AS ON 1 ST APRIL 2003 IF THE ASSESSEE HAS FAILED TO PROVIDE - 15 - 15 DEPRECIATION IN ITS BOOKS OF ACCOUNT. IT IS ALSO OB SERVED THAT THE RELEVANT DETAILS SHOULD HAVE BEEN MADE AVAILABLE BY THE ASSE SSEE AND THE SUBMISSION OF THE LD. CIT DR THAT THE FACTS ARE WITHIN THE SPE CIAL KNOWLEDGE OF THE ASSESSEE AND IT WAS REQUIRED TO ESTABLISH ITS CLAIM OF PURCHASE OF MACHINERY ITS INSTALLATION USER THEREOF AND THE ADDITION TO MACHINERY IF ANY FROM ITS INCEPTION UP TO 31 ST MARCH 2002. SINCE THE ASSESSEE HAS FAILED TO GIVE THE RELEVANT DETAILS OR TO PRODUCE THE REGISTER OF ASSE TS AND THE BILLS AND VOUCHERS IN SUPPORT OF ITS CLAIM THE LD. CIT(A) WAS LEFT WI TH NO ALTERNATIVE BUT TO HOLD THAT THE CLAIM OF DEPRECIATION COULD NOT BE AL LOWED IN ABSENCE OF DETAILS AND EVIDENCE TO SUPPORT THE CLAIM. IT IS ALSO OBSER VED THAT THE ASSESSEE WAS ESTABLISHED BY THE GOVERNMENT OF M.P. AS STATUTORY AUTHORITY AND IT CANNOT BE ACCEPTED THAT THE ASSESSEE WAS NOT REQUIRED TO M AINTAIN THE BOOKS OF ACCOUNT AND KEEP PROPER RECORDS BECAUSE THE ASSESS EE WAS LIABLE TO STATUTORY AS WELL AS GOVERNMENT AUDIT. THE FAILURE OF THE ASS ESSEE TO FILE THE RELEVANT DETAILS CANNOT BE CONSIDERED JUSTIFIED. IT IS ALSO OBSERVED THAT THE ASSESSEE HAS ADMITTEDLY ACQUIRED THE ASSETS SINCE ITS INCEPT ION AND NEARLY 30 YEARS HAVE ELAPSED AS ON 31 ST MARCH 2003. IF THE DEPRECIATION IS ALLOWED EVEN B Y STRAIGHT LINE METHOD OF DEPRECIATION OR AS PER THE PROVISIONS OF THE - 16 - 16 COMPANIES ACT THE WRITTEN DOWN VALUE OF THE ASSETS WOULD BE NOMINAL. WE THEREFORE SEE NO REASON TO INTERFERE WITH THE DECI SION OF THE LD. CIT(A) WHICH IS CONFIRMED. GROUNDS NO. 1 & 2 OF THE APPEAL ARE ACCORDINGLY REJECTED. 11. GROUND NO. 3 OF THE APPEAL IS AGAINST THE DECISION OF THE LD. CIT(A) IN CONFIRMING THE ACTION OF THE AO IN NOT AL LOWING THE DEPRECIATION @ 50% ON NEW COMMERCIAL VEHICLES ACQUIRED FROM 1 ST APRIL 2001 TO 31 ST MARCH 2002 HAS NOT BEEN PRESSED BY THE ASSESSEE. THIS GROUND OF APPEAL IS THEREFORE REJECTED. 12. NEXT GROUND OF APPEAL IS AGAINST INVOKING THE PROVI SIONS OF SECTION 145 OF THE INCOME-TAX ACT 1961. 13. IT HAS BEEN CLAIMED THAT THE OBSERVATIONS OF THE LO WER AUTHORITIES ON THIS ISSUE ARE UNCALLED FOR BEYOND JURISDICTION AND WRONG. THE ASSESSEE HAS PRAYED THAT THE OBSERVATIONS MAY KINDLY BE DIRE CTED TO BE EXPUNGED FROM THE ORDER OF THE LD. CIT(A). THE ISSUE HAS BEEN DIS CUSSED BY THE LD. CIT(A) IN PARA 4 AT PAGES 11 TO 15. THE LD. CIT(A) IN PARA 4.5 OF HIS ORDER HAS CLEARLY NARRATED THAT THE SYSTEM OF ACCOUNTING IN F INANCIAL YEAR 2001-02 WAS CHANGED FROM MERCANTILE TO CASH AND THE EFFECT THER E OF IN WORKING OUT THE - 17 - 17 INCOME IN THE LAST YEAR AND DURING THE YEAR UNDER C ONSIDERATION WAS REQUIRED TO BE CONSIDERED. IT WAS ALSO POINTED OUT THAT AS P ER TAX AUDIT REPORT CASH SYSTEM OF ACCOUNTING WAS FOLLOWED EXCEPT FOR ACCOUN TING THE SALES AND THE BOOKS OF ACCOUNT WERE MAINTAINED ON HYBRID BASIS W HICH IS NOT PERMITTED U/S 145 OF THE ACT AND IN VIEW OF THE OBSERVATIONS MADE BY THE AUDITORS IN PARAS 8 & 9 OF THEIR REPORT THE CERTIFICATE GIVEN BY THEM THAT THE ACCOUNTS GIVE A TRUE AND FAIR VIEW WAS INCORRECT. THE LD. C IT(A) PROVIDED AN OPPORTUNITY TO THE ASSESSEE TO CLARIFY AND EXPLAIN WHETHER THE RESULTS DECLARED BY THE ASSESSEE WERE RELIABLE OR NOT. HE A LSO REQUIRED THEM TO SHOW CAUSE WHY THE BOOK RESULTS OF THE ASSESSEE SHOULD N OT BE REJECTED AS PER THE PROVISIONS OF SECTION 145 OF THE INCOME-TAX ACT 19 61. THE LD. CIT(A) HAS ALSO OBSERVED IN PARA 4.7 OF HIS IMPUGNED ORDER THA T THE ASSESSEE COULD NOT SPECIFY THE EFFECT OF CHANGE IN SYSTEM OF ACCOUNTS ON THE INCOME OF THE YEAR UNDER CONSIDERATION AND THE JUSTIFICATION FOR FOLLO WING THE HYBRID SYSTEM OF ACCOUNTING IN VIOLATION OF PROVISIONS OF SECTION 14 5 COULD NOT ALSO BE GIVEN BY THE ASSESSEE. IT WAS ALSO OBSERVED THAT THE WORK IN PROGRESS WAS NOT INCLUDED IN THE CLOSING STOCK WHILE WORKING OUT THE PROFIT OF THE DEVELOPMENT ACTIVITIES CARRIED OUT BY THE ASSESSEE AND THE INCOME DECLARED - 18 - 18 BY THE ASSESSEE THEREFORE COULD NOT BE CONSIDERED CORRECT IN VIEW OF THE DECISION IN THE CASE OF ALA FIRM VS. CIT 189 ITR 2 87 (S.C.) WHEREIN IT HAS BEEN HELD THAT IT IS A SETTLED LAW THAT TRUE TR ADING RESULTS OF THE BUSINESS FOR AN ACCOUNTING PERIOD CANNOT BE ASCERTAINED WITH OUT TAKING INTO ACCOUNT THE VALUE OF STOCK IN TRADE REMAINING AT THE END OF THE ACCOUNTING PERIOD. THE RESULTS DECLARED BY THE ASSESSEE WERE THEREFORE C ONSIDERED NOT RELIABLE BY THE LD. CIT(A) IN VIEW OF THE FOREGOING DEFECTS AND HE THEREFORE HELD THAT THE A.O. HAD RIGHTLY REJECTED THE BOOKS OF ACCOUNT AS PER THE PROVISIONS OF SECTION 145(3) OF THE INCOME-TAX ACT 1961. 14. THE LEARNED COUNSEL REITERATED THE SUBMISSIONS TAKE N AS PER GROUND NO.4 OF THE APPEAL AND THE LD. SENIOR DEPART MENTAL REPRESENTATIVE SUPPORTED THE ORDER OF THE LD. CIT(A). 15. ON CAREFUL CONSIDERATION OF THE ORDER OF THE LD. CI T(A) AS DISCUSSED ABOVE WE ARE OF THE CONSIDERED OPINION T HAT THE PLEA OF THE ASSESSEE THAT THE OBSERVATIONS OF THE LD. CIT(A) WE RE UNCALLED FOR BEYOND JURISDICTION AND WRONG IS NOT CORRECT. THE BOOKS O F ACCOUNT OF THE ASSESSEE ARE FOUND UNRELIABLE AND THERE WAS NO JUSTIFICATION TO ADOPT THE HYBRID SYSTEM OF ACCOUNTING IN CONTRAVENTION OF PROVISIONS OF SECTION 145 OF THE - 19 - 19 INCOME-TAX ACT 1961. THE ASSESSEE WAS ALSO NOT COR RECT IN NOT INCLUDING THE WORK IN PROGRESS IN ITS CLOSING STOCK AND THEREFOR E THE LD. CIT(A) HAD RIGHTLY HELD THAT THE CORRECT INCOME OF THE ASSESSE E COULD NOT BE DETERMINED FOR ASSESSMENT YEAR 2003-04 IN VIEW OF THE DEFECTS MAINTAINING THE ACCOUNTS AS DISCUSSED ABOVE. WE THEREFORE SEE NO REASON TO ACCEPT THE PRAYER OF THE ASSESSEE THAT THE OBSERVATIONS OF THE LD. CIT(A) SH OULD BE EXPUNGED FROM THE ORDER OF THE LD. CIT(A). THIS GROUND OF APPEAL IS REJECTED. 16. GROUNDS NO. 5 & 6 ARE AGAINST THE DECISION OF THE L D. CIT(A) IN CONFIRMING THE ADDITION OF RS. 37 53 000/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF CLOSING STOCK OF WORK IN PROGRESS. 17. ALTERNATIVELY IT HAS BEEN CONTENDED THAT THE LD. C IT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE AO FOR NOT GIVING T HE CREDIT OF OPENING STOCK OF WORK IN PROGRESS . 18. THE AO OBSERVED THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE DID NOT REFLECT ANY WORK IN PROGRESS. THE ASSESSEE STAT ED THAT NECESSARY DETAILS OF CLOSING INVENTORY AS ON 31.3.2003 WERE SUBMITTED BE FORE THE AO AND THE CLOSING STOCK INCLUDED PROPORTIONATE COST INCURRED BY THE ASSESSEE TOWARDS DEVELOPMENT OF THE PROJECTS IN PROGRESS. IT WAS HO WEVER ACCEPTED THAT SOME - 20 - 20 ELEMENT OF EXPENSES WHICH WERE IN THE NATURE OF CO MMON WORK IN PROGRESS WERE NOT INCLUDED IN THE DETAILS OF INVENTORY FURNI SHED BY THE ASSESSEE FOR THE REASONS THAT SUCH EXPENSES WERE CONSIDERED IN T HE NATURE OF SINK COST. IT WAS ALSO SUBMITTED THAT OPENING WORK IN PROGRESS WA S ALSO NOT SHOWN IN THE FINANCIAL STATEMENT UNDER THE HEAD FINANCIAL INVEN TORY. THE AO OBSERVED THAT ADMITTEDLY THE ASSESSEE DID NOT TAKE INTO ACCO UNT THE COST OF WORK IN PROGRESS WHILE PREPARING FINAL ACCOUNTS AND DISCLOS ING THE VALUE OF CLOSING STOCK. THE ASSESSEE COULD NOT ALSO JUSTIFY ITS CLAI M OF SINK COST. ACCORDING TO THE AO SINCE TRUE BUSINESS PROFIT COULD NOT BE ASC ERTAINED UNLESS THE CLOSING STOCK OF WORK IN PROGRESS IS ACCOUNTED FOR. THE EST IMATED VALUE OF WORK IN PROGRESS WAS TAKEN BY THE ASSESSING OFFICER AT RS. 37 53 000/- AS PER THE DETAILS GIVEN BY THE ASSESSEE WHICH WAS ADDED TO T HE INCOME OF THE ASSESSEE. THE AO ALSO DECLINED TO GIVE ANY REDUCTION ON ACCOU NT OF OPENING WORK IN PROGRESS FOR THE REASONS THAT THE ASSESSEE HAD FILE D ITS RETURN OF INCOME FOR THE FIRST TIME FOR ASSESSMENT YEAR 2003-04. 19. THE LD. CIT(A) CONFIRMED THE ACTION OF THE AO AND H ELD THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE WERE NOT RELIABLE THE BOOK RESULTS WERE LIABLE TO BE REJECTED U/S 145(3) OF THE INCOME-TAX ACT 1961 AND THAT THE TRUE - 21 - 21 INCOME OF THE ASSESSEE COULD NOT BE ASCERTAINED WIT HOUT INCLUDING THE COST OF WORK IN PROGRESS IN THE CLOSING STOCK. HE ALSO OBSE RVED THAT THE ASSESSEE COULD NOT PRODUCE THE RELEVANT RECORDS AND THE BASI S OF WORKING IN SUPPORT OF ITS CLAIM OF OPENING WORK IN PROGRESS DECLARED IN T HE FIRST EVER RETURN FILED WHICH WAS ADMITTEDLY NOT INCLUDED IN THE CLOSING ST OCK FOR THE IMMEDIATELY PRECEDING FINANCIAL YEAR. HE THEREFORE SUSTAINED THE ACTION OF THE AO IN MAKING THE ADDITION OF RS. 37 52 700/- ON ACCOUNT O F CLOSING STOCK OF WORK IN PROGRESS. HE ALSO UPHELD THE DECISION OF THE A.O . IN REJECTING THE ADJUSTMENT ON ACCOUNT OF OPENING STOCK OF WORK IN P ROGRESS CLAIMED BY THE ASSESSEE AT RS. 32 65 000/-. THE LEARNED COUNSEL FO R THE ASSESSEE SUBMITTED THAT THE BOOKS OF ACCOUNT COULD NOT HAVE BEEN REJEC TED ONLY BECAUSE THE ASSESSEE WAS MAINTAINING HYBRID SYSTEM OF ACCOUNTIN G. IT WAS ALSO SUBMITTED THAT THE BOOKS OF ACCOUNT WERE SUBJECT TO CLOSE VIG IL AND AUDIT BY THE GOVERNMENT AUDITORS AND THEREFORE THERE WAS NO PO SSIBILITY OF INCORRECTNESS OR IN-COMPLETENESS OF THE BOOKS OF AC COUNT AND THAT THE PROVISIONS OF SECTION 145(3) OF THE INCOME-TAX ACT 1961 WERE WRONGLY INVOKED IN ITS CASE. IT WAS ALSO CONTENDED THAT THE AO COULD NOT POINT OUT ANY DEFECT IN THE BOOKS OF ACCOUNT OF THE ASSESSEE WHICH WERE PRODUCED - 22 - 22 BEFORE HIM AND THE LD. CIT(A) NEITHER CALLED FOR TH E BOOKS OF ACCOUNT NOR EXAMINED THE SAME AND THEREFORE HE WAS NOT CORREC T IN GIVING A FINDING THAT THE BOOKS OF ACCOUNT WERE LIABLE TO BE REJECTED U/S 145(3) OF THE INCOME-TAX ACT 1961. THE LEARNED COUNSEL RELIED ON THE DECISI ONS IN THE CASES OF R. J. TRIVEDI (HUF) VS. CIT (1983) 144 ITR 877 (MP) WE STERN MAHARASHTRA DEVELOPMENT CORPORATION LIMITED VS. DY. CIT (2008) 114 TTJ (PUNE) PARA 16. BALAPUR VIBHAG JUNGLE KAMDAR MANDALI LIMITED VS . CIT (1982) 135 ITR 91 (GUJ). HE ALSO RELIED ON THE FOLLOWING DECIS IONS :- (I) J.A.TRIVEDI BROTHERS VS. CIT (1986) 158 ITR (MP) 705. (II) SURESHCHAND TALREA VS. CIT (2006) 282 ITR 341 (MP) (III) NARMADA FABRICS BHOPAL VS. ACIT (2007) 8 ITJ 88 (IND. TRIB) (IV) ACIT VS. NARENDRA INDUSTRIES (2008) 10 ITJ 88 (IND TRIB.) (V) PRAHLADDAS HARIKISHAN VS. ACIT (1998) 60 TTJ (IND.) 27. - 23 - 23 20. THE LEARNED COUNSEL FURTHER CONTENDED THAT THE ASSE SSEE WAS CONSISTENTLY NOT TAKING THE VALUE OF CLOSING STOCK OF WORK IN PROGRESS AND THEREFORE PRACTICE FOLLOWED CONSISTENTLY SHOULD HA VE BEEN ACCEPTED BY THE LOWER AUTHORITIES. IT WAS EXPLAINED THAT THE ASSESS EE WAS TREATING THE WORK IN PROGRESS AS SINK EXPENSE AND IT WAS ACCOUNTING FO R THE SAME ONLY WHEN IT MATERIALIZED INTO WORK. ALTERNATIVELY THE LEARNED COUNSEL SUBMITTED THAT THE ASSESSEE HAD GIVEN THE DETAILS OF CLOSING WORK IN PROGRESS AT RS. 37 53 000/- WHICH WAS ACCEPTED BY THE ASSESSING OF FICER BUT THE VALUE OF OPENING WORK IN PROGRESS AS ON 1 ST APRIL 2002 CLAIMED AT RS. 32 65 000/- ON THE SAME BASIS AS ADOPTED FOR ESTIMATING THE CLO SING WORK IN PROGRESS WAS NOT ACCEPTED BY THE ASSESSING OFFICER. IT WAS A LSO CONTENDED THAT IF THE WORK IN PROGRESS WAS INCLUDED IN THE CLOSING STOCK THERE WAS NO REASON THAT THE CORRESPONDING OPENING WORK IN PROGRESS SHOULD N OT HAVE BEEN TAKEN INTO CONSIDERATION FOR DETERMINING THE CORRECT PROFIT OF THE ASSESSEE FOR THE RELEVANT ACCOUNTING PERIOD. IN SUPPORT OF HIS SUBMI SSIONS THE LEARNED COUNSEL RELIED ON THE FOLLOWING DECISIONS :- (A) CHAINRUP SAMPATHRAO VS. CIT (1953) 24 ITR 481 ( S.C.) - 24 - 24 (B) CIT VS. BILAHARI INVESTMENT (P) LIMITED (2008) 299 ITR 1 ( S.C.) (C) CIT VS. HIRJI BHARMAL (1983) 34 CTR (MP) 312. (D) K.G.KHOSLA & CO. (P) LTD.VS. CIT (1975) 99 ITR 574 (DEL) (E) CIT VS. BRITISH PAINTS INDIA LIMITED (1991) 188 ITR 44 ( S.C.) (F) MAHINDRA MILLS LTD. VS. P. B. DESAI AAC & ANR. (1976) 99 ITR 135(SC) (G) V.K.J.BUILDERS & CONTRACTORS (P) LTD. VS. CIT (2009) 318 ITR 204 (S.C.). (H) CIT VS. V.N. DUBE (2008) 296 ITR 704. (I) CIT VS. BANGAL JUTE MILLS CO.LTD. (1992) 107 CTR (CAL) 34. (J) RADHESHYAM AGARWAL CO. VS. CIT (1994) 119 CTR (MP) 263. 21. THE LD. CIT DR SUBMITTED THAT THE ASSESSEE WAS NOT MAINTAINING PROPER BOOKS OF ACCOUNT AND THE VALUATION OF WORK I N PROGRESS WAS NOT INCLUDED IN THE CLOSING STOCK AND ITS BOOKS OF ACCO UNT WERE THEREFORE RIGHTLY REJECTED. HE SUPPORTED THE ORDERS OF THE L OWER AUTHORITIES. - 25 - 25 22. WE HAVE CAREFULLY CONSIDERED THE ISSUE IN VIEW OF T HE ORDERS OF THE LOWER AUTHORITIES RIVAL SUBMISSIONS AND MATERIALS PLACED ON RECORD. IT IS OBSERVED THAT THE SUBMISSION OF THE ASSESSEE THAT T HE BOOKS OF ACCOUNT WERE NOT LIABLE TO BE REJECTED U/S 145(3) OF THE INCOME- TAX ACT 1961 HAS BEEN REJECTED BY US AS PER FOREGOING DISCUSSION WHILE DE CIDING THE GROUND NO. 4 OF THE APPEAL OF THE ASSESSEE. WITH DUE RESPECT THE D ECISIONS CITED BY THE LEARNED COUNSEL ARE OF NO HELP TO THE ASSESSEE BEC AUSE THESE DECISIONS ARE NOT APPLICABLE TO THE FACTS OF THE CASE OF THE ASSE SSEE. IN VIEW OF THE CLEAR DEFECTS STATED BY THE LD. CIT(A) WE SEE NO REASON TO HOLD THAT THE BOOKS OF ACCOUNT HAVE NOT BEEN RIGHTLY REJECTED BY THE LOWE R AUTHORITIES. IT IS ALSO SEEN THAT AFTER REJECTING THE BOOK RESULT THE ONLY ADDITION MADE WAS ON ACCOUNT OF WORK IN PROGRESS WHICH HAS NOT BEEN SHO WN BY THE ASSESSEE IN THE CLOSING STOCK. IT IS SETTLED LAW THAT IF THE AS SESSEE IS NOT MAINTAINING BOOKS OF ACCOUNT ACCORDING TO THE PRINCIPLES OF ACC OUNTANCY THE AO WAS DUTY BOUND TO RE-CAST THE ACCOUNTS. EVEN IF IT IS C ONSIDERED THAT THE CLOSING STOCK OF WORK IN PROGRESS IS TO BE ALLOWED AS OPENI NG STOCK FOR THE NEXT ASSESSMENT YEAR IT IS NECESSARY TO TAKE INTO ACCOU NT THE CLOSING STOCK OF WORK IN PROGRESS INTO CONSIDERATION FOR DETERMINING THE INCOME OF THE - 26 - 26 RELEVANT ACCOUNTING PERIOD. THE ADDITION TO CLOSING STOCK IS NO DOUBT NEUTRALIZED BY TAKING INTO CONSIDERATION THE ADDITI ON IN THE OPENING STOCK OF NEXT YEAR WHICH WOULD BE THE SAME AS CLOSING STOCK OF THE EARLIER YEAR BUT UNDENIABLY IT AFFECTS THE CORRECT DETERMINATION OF THE PROFITS FOR THE RELEVANT ACCOUNTING PERIOD AND EVERY ASSESSMENT YEAR BEING I NDEPENDENT IN ITSELF SO FAR AS THE DETERMINATION OF CORRECT PROFIT IS CONCE RNED THE ADDITION TO CLOSING STOCK FOR THE COST OF WORK IN PROGRESS NOT ACCOUNTE D FOR BY THE ASSESSEE IN ITS CLOSING STOCK FOR THE RELEVANT ACCOUNTING PERIOD IS REQUIRED TO BE MADE. THE ASSESSEE HAS HIMSELF GIVEN THE VALUE OF CLOSING STO CK OF WORK IN PROGRESS AT RS. 37 53 000/- AND THE AO HAS ACCEPTED THE SAME. T HE ASSESSEE COULD NOT ALSO PROVE THAT THE CLOSING STOCK OF WORK IN PROGRE SS DID NOT HAVE ANY VALUE AND THE PRACTICE FOLLOWED BY IT TO ACCOUNT FOR WORK IN PROGRESS OR THE SINK EXPENSES ONLY WHEN IT TAKES THE SHAPE OF EXECUTED WORK CANNOT BE CONSIDERED CORRECT BECAUSE THE EXPENDITURE DEBITED TO TRADING ACCOUNT TO THE EXTENT IT IS NOT REFLECTED IN THE SALES OF THE ASSESSEE IS TO BE OFF SET BY TAKING ITS VALUE AS WORK IN PROGRESS OR THE STOCK O F FINISHED PRODUCT IN THE CLOSING STOCK. WE THEREFORE UPHOLD THE ADDITION O F RS. 37 53 000/-. HOWEVER THE ALTERNATIVE CONTENTION OF THE LEARNED COUNSEL THAT THE OPENING - 27 - 27 WORK IN PROGRESS OF THE ASSESSEE SHOWN AT RS. 32 65 000/- SHOULD HAVE BEEN CONSIDERED BY THE ASSESSING OFFICER IS CONSIDERED CORRECT. THE AO WHILE RECASTING THE TRADING AND PROFIT AND LOSS ACCOUNT O F THE ASSESSEE CANNOT IGNORE THE OPENING STOCK WHICH HAS TO BE TAKEN ON THE DEBIT SIDE WHILE MAKING ADDITION OF CORRESPONDING WORK IN PROGRESS O N THE CREDIT SIDE AS CLOSING STOCK. THE ASSESSEE HAS CLAIMED THAT IT HAS ESTIMATED THE OPENING STOCK OF WORK IN PROGRESS ON THE SAME PRINCIPLES AS WERE APPLIED FOR VALUING THE WORK IN PROGRESS OF CLOSING STOCK AND THE VALUE OF WORK IN PROGRESS OF CLOSING STOCK HAS BEEN ACCEPTED BY THE ASSESSING OF FICER AND THUS THERE WAS NO REASON FOR THE AO TO REJECT THE COST OF OPEN ING STOCK OF WORK IN PROGRESS DECLARED AT RS. 32 65 000/-. IN OUR CONSID ERED OPINION THE LOWER AUTHORITIES ARE NOT CORRECT IN DECLINING TO ALLOW T HE BENEFIT OF OPENING STOCK TO THE ASSESSEE ONLY FOR THE REASON THAT THE INCOME OF THE ASSESSEE WAS NOT LIABLE TO TAX UP TO ASSESSMENT YEAR 2002-03 SINCE THE INCOME FOR EVERY ASSESSMENT YEAR IS TO BE DETERMINED INDEPENDENTLY. THE EXEMPT INCOME FOR ASSESSMENT YEAR 2002-03 WOULD BEEN CORRECTLY DETERM INED BY INCLUDING THE WORK IN PROGRESS IN ITS CLOSING STOCK FOR ASSESSMEN T YEAR 2002-03 AND IT WOULD AUTOMATICALLY BECOME THE OPENING STOCK FOR AS SESSMENT YEAR 2003-04. - 28 - 28 IN ANY CASE THE VALUE OF WORK IN PROGRESS OF EARLI ER YEARS WHICH HAS EITHER BEEN INCLUDED INTO THE SALES OF THE ASSESSEE OR THE CLOSING STOCK OF FINISHED PRODUCTS OR REMAINED AS PART OF WORK IN PROGRESS AT THE END OF THE YEAR IS TO BE DEBITED TO THE MANUFACTURING/TRADING ACCOUNT OF THE ASSESSEE. THE ALTERNATIVE PLEA OF THE ASSESSEE IS THEREFORE ACCE PTED AND THE AO IS DIRECTED TO ALLOW THE RELIEF OF RS. 32 65 000/- ON ACCOUNT O F OPENING STOCK OF WORK IN PROGRESS. 23. GROUND NO. 7 IS OF GENERAL IN NATURE AND NO SPECIFI C ADJUDICATION IS THEREFORE REQUIRED THEREON. 24. THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. I.T.A.NO. 433/IND/2008 A. Y. 21004-05: 25. THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER DATED 30.5.2008 OF THE LD. CIT(A)-II INDORE. 26. THE FIRST GROUND OF APPEAL IS AGAINST THE ENHANCEME NT OF INCOME OF THE ASSESSEE BY THE LD. CIT(A) BY REJECTING THE CLA IM OF DEPRECIATION. 27. THIS ISSUE HAS ALREADY BEEN DECIDED BY US IN OUR OR DER FOR ASSESSMENT YEAR 2003-04 IN THE CASE OF THE ASSESSEE . FOR THE REASONS - 29 - 29 DISCUSSED THEREIN THE ORDER OF THE LD. CIT(A) ON T HIS ISSUE IS CONFIRMED. THIS GROUND OF APPEAL IS REJECTED. 28. THE SECOND GROUND OF APPEAL IS AGAINST THE DECISION OF THE LD. CIT(A) IN CONFIRMING THE ADDITION OF RS. 45 26 000/ - TO THE INCOME OF THE ASSESSEE ON ACCOUNT OF VALUATION OF CLOSING WORK IN PROGRESS. 29. THE FACTS OF THE CASE ARE SIMILAR TO THE FACTS FOR ASSESSMENT YEAR 2003-04 DECIDED BY US AS PER OUR ORDER IN FOREGOING PARAGRAPHS. FOR THE REASONS DISCUSSED THEREIN WE UPHOLD THE ACTION OF THE LOWER AUTHORITIES IN MAKING THE ADDITION OF RS. 45 26 000/- TO THE CLOSI NG TOCK ON ACCOUNT OF COST OF WORK IN PROGRESS NOT INCLUDED BY THE ASSESSEE IN ITS CLOSING STOCK. THIS GROUND OF APPEAL IS REJECTED. 30. THE THIRD GROUND OF APPEAL IS AGAINST THE DECISION OF THE LD. CIT(A) IN GIVING RELIEF OF ONLY RS. 24 60 000/- OUT OF ADDITION OF RS. 30 LAKHS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF A LLEGED SALE PREMIUM DIFFERENCE. 31. IT HAS ALSO BEE CONTENDED THAT THE LD. CIT(A) GROSS LY ERRED IN NOT GIVING ANY FINDING IN RESPECT OF REMAINING ADDITION OF RS. 5.40 LAKHS. - 30 - 30 32. THIS GROUND OF APPEAL WAS NOT PRESSED DURING THE CO URSE OF HEARING. THE SAME IS THEREFORE TREATED AS REJECTE D. 33. GROUND NO. 4 IS AGAINST THE CONFIRMATION OF AD HOC ADDITION OF RS. 31 LAKHS MADE BY THE ASSESSING OFFICER TO THE INCOM E OF THE ASSESSEE BY INCREASING THE VALUATION OF THE CLOSING STOCK. 34. THE AO OBSERVED THAT THE ASSESSEE HAD DECLARED THE STOCK OF VACANT LAND AT RS. 55 00 07 054/-. THE ASSESSEE SUB MITTED THAT THE CLOSING STOCK OF LAND WAS VALUED AT RS. 126/- PER SQ.FT. TH E ASSESSEE HOWEVER DID NOT ACCEPT THE SUBMISSION OF THE ASSESSEE. THE ASSE SSEE ADMITTED THAT THE STOCK REGISTER FOR THE CLOSING STOCK OF LAND WAS NO T MAINTAINED THAT IT WAS NOT POSSIBLE TO HAVE DAY TO DAY STOCK REGISTER AND VARIOUS EXPENDITURE ON THE DEVELOPMENT OF LAND WERE TAKEN INTO ACCOUNT AND THE COST OF THE LAND WAS WORKED OUT AT THE AVERAGE RATE OF RS. 1357/- PER SQ .MTR. AND THE RATE PER SQ.FT. WAS ACCORDINGLY TAKEN AT RS. 126/- PER SQ.FT. WH ICH WAS REASONABLE. THE AO HELD THAT IN ABSENCE OF PROPER REGISTER FOR VALU ATION OF CLOSING STOCK THE COST DECLARED BY THE ASSESSEE COULD NOT BE CONSIDER ED CORRECT AND THE ADDITION OF RS. 31 LAKHS WAS MADE. THE LD. CIT(A) C ONFIRMED THE ADDITION. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ADDITION WAS MADE - 31 - 31 ON AD HOC BASIS AND EVEN IF THE VALUATION OF THE AS SESSEE WAS REJECTED AND ADVERSE INFERENCE WAS DRAWN IN ABSENCE OF PROPER ST OCK REGISTER THE AO SHOULD NOT HAVE MADE AD HOC ADDITION WITHOUT GIVING COGENT REASONS IN SUPPORT OF THE ADDITION BECAUSE EVEN AFTER REJECTI NG THE BOOKS OF ACCOUNT OF THE ASSESSEE HE WAS REQUIRED TO MAKE THE BEST JUDG MENT ASSESSMENT. HE ALSO SUBMITTED THAT THE LD. CIT(A) HAS ALSO NOT GIVEN AN Y REASONS FOR SUSTAINING THE AD HOC ADDITION MADE BY THE ASSESSING OFFICER. THE LD. CIT DR POINTED OUT THAT THE LD. CIT(A) HAS OBSERVED THAT INCREASE IN THE VALUE OF CLOSING STOCK BY THE ASSESSING OFFICER WAS ONLY 0.5% WHICH WAS CONSIDERED REASONABLE LOOKING TO THE INCREASE IN THE DEVELOPME NT COST. 35. ON A CAREFUL CONSIDERATION OF THE FACTS MATERIALS PLACED ON RECORD AND RIVAL SUBMISSIONS WE ARE OF THE CONSIDERED OPI NION THAT THE LEARNED COUNSEL FOR THE ASSESSEE HAS RIGHTLY STATED THAT AF TER REJECTING THE VALUATION OF CLOSING STOCK DECLARED BY THE ASSESSEE THE AO W AS REQUIRED TO MAKE THE ADDITION ON THE BASIS OF PROPER MATERIAL AND AD HOC ADDITION WAS NOT WARRANTED. THE LEARNED COUNSEL FOR THE ASSESSEE H OWEVER ACCEPTED THAT THE VALUATION WAS ON THE SAME BASIS AS THAT MADE IN EARLIER YEAR AND ACCEPTED BY THE DEPARTMENT. IN OUR CONSIDERED OPINION THE LAND RATE TAKEN FOR EARLIER - 32 - 32 YEAR FOR THE STOCK OF THE LAND CARRIED FORWARD FROM EARLIER YEARS COULD HAVE BEEN AT THE SAME PRICE IF FRESH LANDS ARE NOT PURCH ASED OR ACQUIRED DURING THE YEAR BUT THE NEW LAND IF ACQUIRED BY THE ASSESSEE DURING THE YEAR WOULD HAVE TO BE VALUED AT A HIGHER RATE. THERE WOULD ALS O BE INCREASE IN THE DEVELOPMENT COST DURING THE YEAR AND THEREFORE TH E SUBMISSION OF THE LD. SENIOR DEPARTMENTAL REPRESENTATIVE IS CONSIDERED CO RRECT SO FAR AS HE HAS POINTED OUT THAT 0.5% VARIATION IN ABSENCE OF ANY O THER DETAILS CAN BE CONSIDERED JUSTIFIED IN VIEW OF THE INCREASE IN THE DEVELOPMENT COST ITSELF. WE THEREFORE SEE NO REASON TO INTERFERE WITH THE DECISION OF THE LD. CIT(A) ON THIS ISSUE. THIS GROUND OF APPEAL IS ALSO REJECT ED. 36. FIFTH GROUND OF APPEAL AGAINST CONFIRMATION OF LEVY OF INTEREST U/S 234-A OF THE INCOME-TAX ACT 1961 WAS NOT PRESSED BY THE LEARNED COUNSEL FOR THE ASSESSEE. THIS GROUND IS TREATED AS REJECTE D. 37. AS A RESULT THIS APPEAL OF THE ASSESSEE IS DISMISS ED. I.T.A.NO. 516/IND/2008 A. Y. 2005-06 : 38. THIS APPEAL HAS BEEN FILED AGAINST THE ORDER DATED 11 TH SEPTEMBER 2008 OF THE LD. CIT(A). 39. GROUND NO. 1 IS REPRODUCED BELOW :- - 33 - 33 1(A) THAT ON THE FACTS AND UNDER THE CIRCUMSTAN CES OF THE CASE THE LD. CIT(A)-II INDORE GROSSLY ERRED IN ENHANCING THE INCOME OF THE APPELLANT BY HOLDING TH AT FOR WANT OF FIXED ASSETS REGISTER THE APPELLANT WOULD N OT BE ELIGIBLE TO CLAIM ANY DEPRECIATION ON FIXED ASSETS ACQUIRED BY IT PRIOR TO 1.4.2002. (B) THAT ON THE FACTS AND UNDER THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A)-II ALSO ERRED IN NOT DELETING THE ADDITION OF RS. 13 06 971/- MADE BY THE LD. AO ON ACCOUNT OF THE DEPRECIATION CLAIMED. (C) THAT ON THE FACTS AND UNDER THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) ALSO ERRED IN NOT ALLOWING HIG HER RATE OF DEPRECIATION CLAIMED BY THE APPELLANT ON M OTOR VEHICLES PURCHASED BY IT DURING THE PERIOD BETWEEN 01.04.2001 TO 31.3.2002. 40. GROUND NO. 1(C) WAS NOT PRESSED BY THE ASSESSEE. SO FAR AS GROUND NO. 1(A) & (B) ARE CONCERNED THE FACTS OF THE CASE ARE SIMILAR TO ASSESSMENT YEAR 2003-04 WHEREIN AS PER ORDER IN FOREGOING PAR AGRAPHS WE HAVE - 34 - 34 CONFIRMED THE ORDER OF THE LD. CIT(A) ON THIS ISSUE . FOLLOWING THE SAME LINE OF ARGUMENTS GROUNDS NO. 1(A) & (B) ARE REJECTED. 41. GROUND NO. 2 OF THE APPEAL IS AGAINST CONFIRMATION OF THE ADDITION OF RS. 89 44 000/- ON ACCOUNT OF VALUATION OF CLOSI NG WORK IN PROGRESS. 42. THE FACTS ARE SIMILAR TO THOSE FOR ASSESSMENT YEAR 2003-04. FOLLOWING OUR ORDER FOR ASSESSMENT YEAR 2003-04 ON THIS ISSUE AS PER DISCUSSION ABOVE WE CONFIRM THE ORDER OF THE LD. C IT(A). THIS GROUND OF APPEAL IS ALSO REJECTED. 43. THIRD GROUND OF APPEAL IS AGAINST THE CONFIRMATION OF AD HOC ADDITION OF RS. 3 CRORES MADE BY THE ASSESSING OFFI CER BY INCREASING THE VALUATION OF CLOSING STOCK. 44. THE FACTS ARE SIMILAR TO THE FACTS FOR ASSESSMENT Y EAR 2004-05 WHEREIN WE HAVE CONFIRMED THE ORDER OF THE LD. CIT( A). THE LEARNED COUNSEL HOWEVER SUBMITTED THAT IN A.Y. 2004-05 T HE AO HAD MADE AD HOC ADDITION OF RS. 31 LAKHS WHICH WAS CONSIDERED ONLY 0.5% OF THE TOTAL CLOSING STOCK OF LAND DECLARED BY THE ASSESSEE WHE REAS IN ASSESSMENT YEAR 2005-06 HEAVY ADDITION OF RS. 3 CRORES HAD BEEN MA DE BY THE ASSESSING OFFICER WITHOUT GIVING ANY JUSTIFICATION. HE REITER ATED THAT EVEN IF THE STOCK - 35 - 35 REGISTER WAS NOT MAINTAINED AND THE AO WAS NOT IN A POSITION TO ACCEPT THE CLOSING STOCK VALUATION DECLARED BY THE ASSESSEE. T HE AD HOC ADDITION WAS NOT WARRANTED. IN VIEW OF THE SETTLED PRINCIPLE OF LAW THAT AFTER REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE THE AO WAS REQUIR ED TO PROCEED IN THE MANNER OF BEST JUDGMENT ASSESSMENT AND GIVE COGENT REASONS FOR ADDITION IF ANY MADE BY HIM. DURING THE COURSE OF HEARING BEFO RE US THE LEARNED COUNSEL ADMITTED THAT PROPER RECORDS OF PURCHASE OF LAND DEVELOPMENT COST SALE AND CLOSING STOCK WERE NOT AVAILABLE AND THERE WAS HEAVY INCREASE IN THE DEVELOPMENT COST DURING THE YEAR. THE ISSUE HAS BEE N DISCUSSED IN DETAIL BY THE LD. CIT(A) IN PARA 5 AT PAGES 11 TO 18 OF HIS O RDER. HOWEVER IN THE CONCLUDING PARA THE ONLY REASON GIVEN FOR CONFIRMA TION OF ADDITION IS THAT THE ASSESSEE WAS NOT ABLE TO ESTABLISH THE VALUE OF CLOSING STOCK TAKEN BY HIM. IT IS OBSERVED THAT THE ASSESSEE HAD DECLARED CLOSING STOCK OF RS. 48 26 71 000/- FOR THE VACANT LAND AND CLOSING STOC K OF FLATS AND QUARTERS AT RS. 3 44 36 000/-. THUS THE TOTAL VALUE OF CLOSING STOCK DECLARED BY THE ASSESSEE IS RS. 51 71 07 000/-. THE ASSESSEE HAS AD OPTED THE COST PRICE OF STOCK @ RS. 126/- PER SQ.FT. WHICH IS THE SAME AS T AKEN BY THE ASSESSEE FOR VALUATION OF CLOSING STOCK IN EARLIER YEARS AND NO INCREASE HAS BEEN SHOWN - 36 - 36 FOR THE NEW LAND ACQUIRED OR ON ACCOUNT OF INCREASE IN THE DEVELOPMENT COST. THE DEPARTMENTAL REPRESENTATIVE MAINTAINED THAT THE RE WAS INCREASE IN THE DEVELOPMENT COST AND THE COST OF VACANT LAND ACQUIR ED DURING THE YEAR AND THEREFORE CONSIDERING INCREASE IN THE RATES OF LAN D AND HIGHER COST OF DEVELOPMENT THE ADDITION OF APPROXIMATELY 6 % TO T HE VALUE DECLARED BY THE ASSESSEE WAS JUSTIFIED. 45. THE LEARNED COUNSEL FOR THE ASSESSEE DURING THE CO URSE OF HEARING EXPRESSED HIS INABILITY TO PRODUCE ANY REC ORDS OR TO GIVE ANY COST ANALYSIS OR THE REPORT OF ANY EXPERT COST ACCOUNTAN T IN SUPPORT OF THE CLOSING STOCK VALUE DECLARED BY IT. IT IS HOWEVER SEEN TH AT THE INCREASE MADE BY THE ASSESSING OFFICER IN ASSESSMENT YEAR 2004-05 WAS ON LY 0.5 %. THEREFORE THE SUDDEN INCREASE @ 6 % ON AD HOC BASIS CANNOT BE CONSIDERED JUSTIFIED. THE RESTORATION OF MATTER WOULD NOT SERVE ANY PURPO SE BECAUSE THE ASSESSEE HAS NEITHER MAINTAINED PROPER RECORDS NOT IT IS IN A POSITION TO GIVE ANY EVIDENCE ON THIS ISSUE. THUS THERE IS NO ALTERNATI VE BUT TO MAKE A REASONABLE ESTIMATE OF INCREASE IN THE COST PRICE ON ACCOUNT O F THE VACANT LAND ACQUIRED DURING THE YEAR BUILDING AND FLATS CONSTRUCTED BUT NOT SOLD AND THE DEVELOPMENT COST ON ACCOUNT OF ANNUAL INCREASE IN P RICES. THUS LOOKING TO - 37 - 37 THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE 2 % INCREASE APPROXIMATELY IS CONSIDERED REASONABLE. THE ADDITIO N OF RS. 1 CRORE IS THEREFORE SUSTAINED. THE ADDITION OF RS. 2 CRORES IS DELETED. THIS GROUND IS PARTLY ALLOWED. 46. GROUND NO. 4 IS AGAINST THE DECISION OF THE LD. CIT (A) IN CONFIRMING THE ADDITION OF RS. 3 94 479/- OUT OF TO TAL ADDITION OF RS. 7 88 959 MADE BY THE ASSESSING OFFICER BY DISALLOWI NG THE PROVIDENT FUND DAMAGES EXPENSES. 47. THE AO OBSERVED THAT THE ASSESSEE CLAIMED EXPENDIT URE OF RS.7 88 959/- ON ACCOUNT OF P.F. DAMAGES IN ITS INC OME AND EXPENDITURE ACCOUNT. THE ASSESSEE SUBMITTED THAT THE CLAIM WAS ON ACCOUNT OF DAMAGES/PENAL CHARGES PAID TO P.F. DEPARTMENT FOR L ATE PAYMENT OF REGULAR P.F. DEDUCTIONS. SINCE THE EXPENDITURE WAS PENAL IN NATURE THE AO CONSIDERED IT INADMISSIBLE EXPENDITURE. THE LD. CIT (A) AFTER TAKING INTO CONSIDERATION THE SUBMISSIONS OF THE ASSESSEE THAT THE PAYMENT WAS MADE AS PER ORDER DATED 2 ND SEPTEMBER 2004 TO THE REGIONAL PROVIDENT FUND COMMISSIONER U/S 14B OF PROVIDENT FUND ACT OBSERVE D THAT IT WAS NOT POSSIBLE TO DETERMINE AS TO HOW MUCH PAYMENT WAS PE NAL IN NATURE AND HOW - 38 - 38 MUCH WAS COMPENSATORY IN NATURE. HE THEREFORE RES TRICTED THE DISALLOWANCE TO 50 %. THE LEARNED COUNSEL SUBMITTED BEFORE US TH AT A PERUSAL OF THE RELEVANT ORDER OF THE P. F. AUTHORITIES PLACED AT P AGES 69 TO 71 OF THE PAPER BOOK WOULD REVEAL THAT THE ENTIRE PAYMENT OF RS. 7 88 959/- WAS COMPENSATORY IN NATURE AND NO PENALTY WAS LEVIED FO R INFRACTION OF ANY STATUTORY PROVISIONS. HE THEREFORE CLAIMED THAT T HE ENTIRE EXPENDITURE OF RS. 7 88 959/- WAS ADMISSIBLE AND THE 50 % ADDITION SUS TAINED BY THE LD. CIT(A) DESERVED TO BE DELETED. 48. IT IS SEEN FROM THE ORDER OF THE PROVIDENT FUND COM MISSIONER AT PAGES 69 TO 71 OF THE PAPER BOOK THAT THE ASSESSEE AS AN EMPLOYER HAD FAILED TO MAKE PAYMENT OF STATUTORY DUES IN TIME AND DAMAG ES WERE DETERMINED AT RS. 7 88 959/- FOR DELAYED PAYMENT OF THE DUES. IT HAS BEEN CLEARLY STATED THAT THE LEVY OF DAMAGES WAS TO COMPENSATE THE LOSS TO THE EMPLOYEES PROVIDENT FUND ORGANIZATION. HOWEVER IT IS SEEN FR OM THE COPY OF RELEVANT PAGES OF THE EMPLOYEES PROVIDENT FUND AND MISC. PRO VIDENT FUND ACT PLACED AT PAGE 73 OF THE PAPER BOOK THAT U/S 14B T HE RECOVERY FROM THE EMPLOYER WAS TO BE MADE BY WAY OF PENALTY. THE DAMA GE ARE THEREFORE NOT PURELY IN THE NATURE OF COMPENSATION FOR LOSS OF IN TEREST ON ACCOUNT OF - 39 - 39 DELAYED PAYMENT BUT IS ALSO IN THE NATURE OF PENAL TY FOR NOT COMPLYING WITH THE STATUTORY PROVISIONS OF MAKING PAYMENT OF DUES WITHIN THE STATUTORY PERIOD. THE LD. CIT(A) HAS VERY FAIRLY CONSIDERED H ALF OF THE AMOUNT AS COMPENSATION AND REMAINING HALF AS PENALTY. SINCE T HE LEVY OF PENALTY FOR NON-COMPLIANCE OF STATUTORY PROVISIONS IS NOT AN AL LOWABLE EXPENDITURE AND THE PAYMENT MADE IS NOT IN THE NATURE OF DAMAGES FO R BREACH OF CONTRACT WE SEE NO REASON TO INTERFERE WITH THE DECISION OF LD. CIT(A) ON THIS ISSUE. THIS GROUND OF APPEAL IS ALSO REJECTED. 49. THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 50. AS A RESULT THE APPEALS FOR ASSESSMENT YEARS 2003- 04 AND 2005-06 ARE PARTLY ALLOWED AND APPEAL FOR ASSESSMENT YEAR 2 004-05 IS DISMISSED. SD/- SD/- (JOGINDER SINGH) (B.R. KAUSHIK) JUDICIAL MEMBER ACCOUNTANT MEMBER 31 ST AUGUST 2010. CPU*1820.8 COPY FORWARDED TO THE: - 1. APPELLANT. 2. RESPONDENT. 3. CIT (A) 4. CIT 5. DR. ASSISTANT REGISTRA R