Man Diesel India Ltd., Aurangabad v. Addl. CIT, New Delhi

ITA 287/DEL/2011 | 2005-2006
Pronouncement Date: 30-03-2012 | Result: Partly Allowed

Appeal Details

RSA Number 28720114 RSA 2011
Assessee PAN AAACM0320L
Bench Delhi
Appeal Number ITA 287/DEL/2011
Duration Of Justice 1 year(s) 2 month(s) 13 day(s)
Appellant Man Diesel India Ltd., Aurangabad
Respondent Addl. CIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 30-03-2012
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted E
Tribunal Order Date 30-03-2012
Date Of Final Hearing 19-03-2012
Next Hearing Date 19-03-2012
Assessment Year 2005-2006
Appeal Filed On 17-01-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E DELHI BEFORE SHRI I.P. BANSAL AND SHRI K.G. BANSAL ITA NO. 287(DEL)/2011 ASSESSMENT YEAR: 2005-06 MAN DIESEL & TURBO INDIA LTD. ADDIT IONAL COMMISSIONER OF (FORMERLY KNOWN AS MAN IN COME-TAX RANGE-6 NEW DELHI. B &W DIESEL INDIA LTD.) VS. E-73 MIDC WALUJ AURANGABAD. AND ITA NO. 246(DEL)/2012 ASSESSMENT YEAR: 2007-08 MAN DIESEL & TURBO INDIA LTD. ADDIT IONAL COMMISSIONER OF (FORMERLY KNOWN AS MAN IN COME-TAX RANGE-6 NEW DELHI. DIESEL INDIA LTD.) VS. E-73 MIDC WALUJ AURANGABAD. PAN: AAACM0320L (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI GREENIZE JAIN RESPONDENT BY: SHRI R.S. NEGI SR. D.R. DATE OF HEARIN G : 19.03.2012 DATE OF PRONOUN CEMENT: 30.03.2012 ORDER PER K.G. BANSAL : AM THESE TWO APPEALS OF THE ASSESSEE WERE ARGUED I N A CONSOLIDATED MANNER BY THE LD. COUNSEL FOR THE ASSESSEE AND TH E LD. DR. THEREFORE WE PASS A CONSOLIDATED ORDER DISPOSING OF THESE APPE ALS. ITA NOS. 287(DEL)/2011& 246(DEL)/2012 2 1.1 THE TRIBUNAL HAD PASSED THE ORDER FOR ASSESSME NT YEAR 2005-06 ON 22.03.2011 IN WHICH THE APPEAL OF THE ASSESSEE WAS DISMISSED IN LIMINE FOR NON-PROSECUTION. THIS ORDER WAS RECALLED ON 19.08.2011 ON AN APPLICATION MADE BY THE ASSESSEE SO THAT THE APPEA L COULD BE DECIDED ON MERITS. 1.2 THE ASSESSEE HAD FURNISHED AN APPLICATION DA TED 21.11.2011 SEEKING ADMISSION OF ADDITIONAL EVIDENCE. HOWEV ER THIS APPLICATION WAS WITHDRAWN BY THE LD. COUNSEL IN THE COURSE OF HEAR ING BEFORE US. THEREFORE THE ADDITIONAL EVIDENCE IS NOT ADMITTED AND APP EAL FOR THE RELEVANT YEAR ASSESSMENT YEAR 2005-06 IS DISPOSED OFF ON THE BASIS OF FACTS AND EVIDENCES AVAILABLE BEFORE THE LOWER AUTHORITIE S. 2. GROUND NO. 1 IS THAT THE LD. CIT(APPEALS) ERRE D IN CONFIRMING THE DISALLOWANCE OF RS.1 04 492/- MADE BY THE AO IN R ESPECT OF SALARY EXPENSES ON THE GROUND THAT THESE ARE PERSONAL EXP ENSES. 2.1 IN THIS CONNECTION IT IS MENTIONED IN THE ASS ESSMENT ORDER THAT THE ASSESSEE WAS REQUIRED TO FILE DETAILS OF EXPENS ES INCURRED BY WAY OF SALARIES WAGES OTHER BENEFITS ETC. DEBITED TO PR OFIT AND LOSS ACCOUNT. THE ITA NOS. 287(DEL)/2011& 246(DEL)/2012 3 DETAILS WERE FILED SHOWING TOTAL EXPENDITURE OF RS. 15 54 556/-. IT WAS SUBMITTED THAT EXPENSES WERE IN THE NATURE OF R EIMBURSEMENTS MADE TO EMPLOYEES IN RESPECT OF REPAIRS AND MAINTENANCE DRIVER EXPENSES FURNISHING EXPENSES PERSONAL DEVELOPMENT EXPENS ES HM ALLOWANCE SERVANT ALLOWANCE AND ELECTRICITY GAS AND WATER EXPENSES. IN THIS CONNECTION IT IS MENTIONED THAT NO JUSTIFICATIO N HAS BEEN PROVIDED FOR THE CLAIM. IT IS ALSO NOT UNDERSTANDABLE AS TO WH Y THE EMPLOYEES WILL SPEND MONEY OUT OF THEIR OWN RESOURCES AND SPEND THEM ON BEHALF OF THE COMPANY AS EXPENSES. THEREFORE IT HAS BEEN HELD THAT THESE EXPENSES HAVE NO CONNECTION WITH THE BUSINESS AND THESE EXP ENSES ARE PERSONAL EXPENSES OF THE EMPLOYEES AND DIRECTORS. THUS THE EXPENDITURE HAS BEEN DISALLOWED. 2.2 THE LD. CIT(APPEALS) EXAMINED THE DETAILS OF EXPENSES STATED TO BE IN THE NATURE OF PERQUISITES. HE ALSO CONSIDERED THE QUANTIFICATION OF PERQUISITES IN THE HANDS OF THE EMPLOYEES AS PROV IDED UNDER INCOME-TAX RULES 1962. IT IS MENTIONED THAT PERQUISITES HA VE BEEN FURNISHED TO THE EMPLOYEES AS PER THEIR TERMS OF EMPLOYMENT TH EREFORE THE DISALLOWANCE OF THE WHOLE OF THE EXPENDITURE WOULD AMOUNT TO D OUBLE TAXATION. HOWEVER IT WAS FOUND THAT THE MONETARY VALUE O F PERQUISITE IN CASE OF ITA NOS. 287(DEL)/2011& 246(DEL)/2012 4 SHRI A.K. BANSAL COMES TO RS. 68 220/- AGAINST WH ICH A SUM OF RS. 1 72 712/- HAS BEEN PAID. THEREFORE THE ACTUAL PAYMENT IS MORE THAN THE PAYMENT PERMISSIBLE UNDER TERMS OF CONDITIONS OF HIS EMPLOYMENT. ACCORDINGLY THE DIFFERENCE OF RS. 1 04 492/- (RS . 1 72 712/- MINUS RS. 68 220/-) HAS BEEN DISALLOWED. 2.3 BEFORE US THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT SHRI A.K. BANSAL WAS A DIRECTOR IN THE COMPANY WHO WAS LOO KING AFTER BUSINESS DEVELOPMENT. HE LEFT SERVICE ON 17.08.2004. BY THAT TIME HE HAD ALREADY BEEN PAID A SUM OF RS. 1 72 712/-. THE AMOUNT MA Y BE IN EXCESS OF THE PERQUISITE ALLOWABLE TO HIM UNDER THE CONDITION OF EMPLOYMENT. HOWEVER THE AMOUNT WAS PAID TO HIM QUA AN EMPLOYEE. SIN CE HE LEFT THE EMPLOYMENT THERE WAS NO POSSIBILITY OF RECOVERIN G THE AMOUNT FROM HIM. THEREFORE IT IS ARGUED THAT THE EXPENDITURE H AS BEEN INCURRED IN THE COURSE OF BUSINESS. 2.4 IN REPLY THE LD. SENIOR D.R. REFERS TO PAG E NO. 30 OF THE PAPER BOOK WHERE DETAILS OF PERQUISITES PROVIDED TO EMPLOYEE S AND THEIR TAXABILITY HAVE BEEN FURNISHED. IT IS SEEN THAT IN ALL THE CASES PERQUISITES ACTUALLY PAID IN MONETARY TERM ARE LOWER THAN THE PERQUI SITES PAYABLE AS PER ITA NOS. 287(DEL)/2011& 246(DEL)/2012 5 EMPLOYMENT TERMS. HOWEVER IN THE CASE OF SHRI A.K. BANSAL MONIES PAID BY WAY OF PERQUISITES EXCEED THE AMOUNT AS PER TERMS. THE TAXABLE PERQUISITE IN HIS CASE HAS BEEN WORKED OUT AT RS. 9 000/- WHICH IS PRIMARILY IN RESPECT OF RUNNING AND MAINTENANCE OF CAR INCLU DING REPAIRS AND DRIVERS SALARY. IT IS HIS CASE THAT THE WHOLE OF THE EX PENDITURE HAS NOT BEEN INCURRED IN THE COURSE OF BUSINESS AS EXCESS PAYM ENT HAS BEEN MADE THEREFORE THE LD. CIT(APPEALS) RIGHTLY RESTRICT ED THE EXPENDITURE IN HIS CASE. 2.5 WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. SECTION 37(1) PERMITS DEDUCTION OF EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS . ONCE IT IS SHOWN THAT THE EXPENDITURE HAS BEEN INCURRED IN THE COURSE OF BUSINESS THE INCIDENTAL BENEFIT TO THE PAYEE CANNOT BE A GROUND FOR DISALL OWING THE WHOLE OR PART OF THE EXPENDITURE. THE ADMITTED FACT IS THAT S HRI A.K. BANSAL WAS AN EMPLOYEE OF THE COMPANY. THE AMOUNT HAS ACTUALLY BEEN PAID TO HIM. HE LEFT EMPLOYMENT ON 17.08.2004 I.E. IN THE MI DDLE OF THE YEAR. THE AMOUNT HAS NOT BEEN RECOVERED FROM HIM. THESE FA CTS SHOW THAT THE EXPENDITURE HAS BEEN INCURRED ON EMPLOYEES QUA EMPLOYER- BUSINESSMAN. THE FACT THAT THE EXPENDITURE IS I N EXCESS OF AGREED TERMS IS ITA NOS. 287(DEL)/2011& 246(DEL)/2012 6 NOT MATERIAL. THEREFORE WE ARE OF THE VIEW THA T THE LD. CIT(APPEALS) ERRED IN DISALLOWING A PART OF THIS EXPENDITURE. 2.6 IN THE RESULT GROUND NO. 1 IS ALLOWED. 3. GROUND NO. 2 IS THAT THE LD. CIT(APPEALS) ERRE D IN CONFIRMING THE DISALLOWANCE MADE BY THE AO IN RESPECT OF OBSOLES CENCE OR DIMINUTION IN THE VALUE OF INVENTORIES AMOUNTING TO RS. 12.00 L AKH. 3.1 IN THIS CONNECTION IT HAS BEEN MENTIONED IN TH E ASSESSMENT ORDER THAT THE ASSESSEE CLAIMED EXPENDITURE OF RS. 12.00 LA KH BY WAY OF OBSOLESCENCE OR DIMINUTION IN THE VALUE OF INVENTORIES. IT W AS SUBMITTED THAT THE DECREASE IN VALUE PERTAINS TO SPARE-PARTS D.G. A UXILIARIES (COMPONENTS) AND STORES WHICH ARE TRADING ASSETS. THESE ITE MS LOST MARKET VALUE TO A LARGE EXTENT IN VIEW OF THE FACT THAT THEY BECAME OBSOLETE WITH CHANGE OF TECHNOLOGY. THEREFORE THE ITEMS BECAME UNSELLABL E. THE AMOUNT HAS BEEN WRITTEN OFF IN ACCORDANCE WITH ACCOUNTING GUID ELINES FOLLOWED BY MAN GROUP OF WHICH THE ASSESSEE IS AN ENTITY. THE N ET REALIZABLE VALUE IN RESPECT OF EACH PART COULD NOT BE WORKED OUT THE REFORE THE LOSS HAS BEEN ASSESSED DEPENDING UPON THE AGE OF EACH ITEM. TH E AO DID NOT FIND THE ITA NOS. 287(DEL)/2011& 246(DEL)/2012 7 AFORESAID EXPLANATION AS SATISFACTORY. IT IS ME NTIONED THAT THE EXPENSES HAVE BEEN CLAIMED WITHOUT ANY BASIS. ACCORDING TO TAX AUDIT REPORT SPARES COMPONENTS AND TOOLS HAVE BEEN VALUED ON THE BASI S OF COST OR MARKET PRICE WHICHEVER IS LOWER. FOR THIS PURPOSE FIF O METHOD HAS BEEN USED FOR DRAWING THE INVENTORY. THE TOTAL OF INVENTOR IES HAS BEEN COMPUTED AT RS. 2 60 09 732/-. THEREFORE IF THERE IS IN DECR EASE IN THE VALUE OF SPARES AND COMPONENTS IT HAS BEEN TAKEN CARE OF IN THE AF ORESAID VALUATION. IN THE LIGHT OF THIS FACT THERE IS NO JUSTIFICATION FO R DEBITING A SUM OF RS. 12.00 LAKH TO PROFIT AND LOSS ACCOUNT. 3.2 BEFORE THE LD. CIT(APPEALS) IT WAS SUBMITTED THAT THE TREATMENT GIVEN TO SPARES AND COMPONENTS IS IN LINE WITH AC COUNTING STANDARD-2 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. THE ASSESSEE WROTE OFF THOSE ITEMS OF STOCK PARTLY WHICH HAVE LOST THE MARKET VALUE DUE TO TECHNOLOGICAL CHANGES. INVENTORIES HAVE TO BE VAL UED AT COST OR NET REALIZABLE VALUE WHICHEVER IS LOWER. THE ITEMS IN THE INVENTORY ARE CUSTOM MADE WHICH FREQUENTLY BECOMES OBSOLETE. TH EREFORE THE EFFECT HAS BEEN GIVEN BY DEBITING A SUM OF RS. 12.00 LAKH TO THE PROFIT AND LOSS ACCOUNT. THE LD. CIT(APPEALS) CONSIDERED THE FACT S OF THE CASE AND SUBMISSIONS MADE BEFORE HIM. IT IS MENTIONED THAT THE ASSESSEE HAS RELIED ITA NOS. 287(DEL)/2011& 246(DEL)/2012 8 ON THE POLICY OF MAN GROUP IN THIS REGARD. THE ASS ESSEE HAD NEVER RAISED SUCH CLAIM IN PAST ITEM-WISE DETAILS WERE N EVER FURNISHED TO THE AO IN PAST THE BASIS FOR SELECTING THE ITEMS FOR RE DUCTION IN VALUE WAS NOT FURNISHED AND EVEN DETAILS OF POLICY OF THE COMPAN Y IN THIS MATTER WERE NOT BE FURNISHED. THEREFORE HE CAME TO THE CONCLUSIO N THAT THERE IS NO JUSTIFICATION IN RAISING A CLAIM OF RS. 12.00 LAKH. 3.3 BEFORE US THE LD. COUNSEL REFERRED TO THE FIN DINGS OF THE LOWER AUTHORITIES. IT IS SUBMITTED THAT THE ASSESSEE I S DEALING IN SPARE PARTS OF DIESEL GENERATING SETS AND ALSO IN MANUFACTURE TH EREOF. THE ASSESSEE STOPPED MANUFACTURING CERTAIN ITEMS IN FINANCIAL YEAR 2003-04. THEREFORE SPARE PARTS RELATABLE TO SUCH MANUFACTURED ITEMS BECAME UNSELLABLE. THE SPARE PARTS WHOSE VALUE WAS REDUCED HAVE NOT BE EN SOLD TILL NOW. THESE WERE PURCHASED ON 14.07.2003. WHILE VALUING THE I NVENTORY THEIR VALUE HAS BEEN REDUCED BY 40%. 3.4 IN ORDER TO SUPPORT THAT SUCH DEDUCTION IS AD MISSIBLE RELIANCE IS PLACED ON THE DECISION IN THE CASE OF K. MOHAMMAD ADAM SAHIB VS.CIT MADRAS 56 ITR 360 (MAD.). ITA NOS. 287(DEL)/2011& 246(DEL)/2012 9 3.5 IN REPLY THE LD. SENIOR DR WOULD REFER TO CERTAIN DETAILS FILED WITH THE APPEAL. PAGE NO. 56 CONTAINS SCHEDULE NO. 6 REGARDING CURRENT ASSETS LOANS AND ADVANCES. TRADING SPARES AND COMPONE NTS HAVE BEEN SHOWN AT RS. 2 27 05 103/-. PAGE NO. 58 CONTAINS SCHEDULE 10 REGARDING COST OF SALES AND SERVICES. A SUM OF RS. 12.00 LAKH H AS BEEN DEBITED AS OBSOLESCENCE OR DIMINUTION IN THE VALUE OF INVEN TORIES. PAGE NO. 61 CONTAINS SIGNIFICANT ACCOUNTING POLICIES AND I TEM (F) IS REGARDING INVENTORY. IT IS MENTIONED THAT INVENTORIES OF RAW-MATERIAL AND COMPONENTS STORES AND SPARES TRADING SPARES AND COMPONENTS AND TOOLS ARE VALUED AT COST OR NET REALIZABLE VALUE WHI CHEVER IS LESS. THE COST FOR THE PURPOSE OF VALUATION OF RAW-MATERIALS AND COMPO NENTS STORES AND SPARES TRADING SPARES COMPONENTS AND TOOLS IS C OMPUTED ON FIFO BASIS. IT IS FURTHER SUBMITTED THAT FROM DISCUSSION IN THE ASSESSMENT ORDER IT APPEARS THAT THE SPARES ETC. UNDER CONSIDERATION HAVE BEEN PURCHASED FROM ANOTHER ENTITY OF MAN GROUP. IN ANY CASE THE SPA RES WERE PURCHASED ON 14.07.2003 I.E. IN THE IMMEDIATELY PRECEDING YE AR. NO SUCH CLAIM WAS EVER MADE IN PAST. THEREFORE IT IS ONLY A DEVIS E TO REDUCE TAXABLE INCOME. IT IS ARGUED THAT DECISION IN THE CASE OF K. MO HAMMAD ADAM SAHIB (SUPRA) IS NOT APPLICABLE AS IN THAT CASE VALUE WAS SHOWN AT NIL WHILE THE ASSESSEE HAS REDUCED THE VALUE IN AN AD-HOC MANNER BY 40%. ITA NOS. 287(DEL)/2011& 246(DEL)/2012 10 3.6 WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. THE FACTS ARE THAT THE ASSESSEE HAD PURCHASED SPARE PARTS ETC. ON 14.07.2003 OF THE VALUE OF RS. 30 03 207/-. IN THE INVENTORY OF THIS YEAR THE VALUE OF THESE SPARE PARTS HAS BEEN REDUCED TO RS. 18 03 207/-. THIS HAS BEEN DONE INDIRECTLY BY DEBITING A SUM OF RS. 12 .00 LAKH TO THE ACCOUNTS. THE ASSESSEE IS FOLLOWING COST OR MARKET VALUE WHICHEVER IS LESS FOR THE PURPOSE OF VALUATION OF INVENTORY. THE QUESTION IS -WHETHER THE ASSESSEE IS ENTITLED TO REDUCE THE VALUE BY RS. 12.00 LAKH? 3.7 THE STRIKING FEATURE OF THIS CASE IS THAT NO DETAIL HAS BEEN FURNISHED ABOUT MANUFACTURED GOODS THE D.G. SETS IN WHICH S UCH ITEMS ARE USED BY THE CUSTOMERS OF THE ASSESSEE WHICH KIND OF D.G. SET HAS BECOME OBSOLETE IN THIS YEAR AND HOW REDUCTION HAS BEEN VALUED AT 40%. THUS THE FACTUAL BASE FOR CLAIM OF LOSS IN THE VALUE OF INVENTORY BY RS. 12.00 LAKH IS MISSING. UNDOUBTEDLY THE ASSESSEE CAN VALUE THE INVENTORY ON THE BASIS OF COST OR MARKET PRICE WHICHEVER IS LOWER. FOR VALUING THE INVENTORY AT A PRICE LOWER THAN COST BILLS FOR SALE OF SIMI LAR ITEMS IN THIS YEAR OUGHT TO HAVE BEEN PRODUCED TO SHOW THAT SALE VALUE WAS LOWER THAN THE COST PRICE. IT HAS NOT BEEN DONE. THE ONLY SUBMISSION WHICH I S MADE IS THAT THESE ITA NOS. 287(DEL)/2011& 246(DEL)/2012 11 SPARE PARTS HAVE NOT BEEN SOLD TILL NOW. AT THE SAME TIME NO REBUTTAL HAS BEEN MADE TO THE SUBMISSION OF THE LD. SENIOR DR THAT SPARE PARTS APPEARS TO HAVE BEEN PURCHASED BY ANOTHER ENTITY OF MAN GROUP. IT MAY BE MENTIONED THAT THERE IS NO EVIDENCE FURNISHED BY T HE REVENUE IN THIS BEHALF AND THEREFORE NO DECISION CAN BE TAKEN ON THIS BASIS BUT WE ARE ONLY REFERRING TO THE FACT THAT NO REBUTTAL HAS BEEN M ADE. THE FACT THAT MARKET PRICE WAS LOWER THAN THE COST HAS TO BE PROVED BY THE ASSESSEE WITH COGENT EVIDENCE AS ANY CLAIM HAS TO BE SUBSTANTI ATED. THIS HAS NOT BEEN DONE BY THE ASSESSEE. THEREFORE WE ARE OF THE V IEW THAT THE CLAIM IS NOT SUPPORTED BY ANY EVIDENCE ON RECORD. 3.8 COMING TO THE DECISION IN THE CASE OF K. MOHA MMAD ADAM SAHIB (SUPRA) THE ASSESSEE WAS DEALING IN SNAKE SKIN S. AS A MATTER OF FACT IT WAS FOUND THAT DURING THE YEAR THAT COBRA SKIN FOUND A MARKET UP TO FEBRUARY 1953 BUT OTHER VARIETIES WHICH WERE ALSO IN THE STOCK OF THE ASSESSEE DID NOT FIND ANY MARKET AND THERE WAS N O SALE. IN THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS SUBMITTED THAT CERTA IN KINDS OF SNAKE SKINS WERE SOLD EARLIER IN AMERICA AND ENGLAND THEY HA D NO MARKET IN INDIA AND FOREIGN AGENTS INFORMED THAT THERE WAS NO BUYER OF EVEN THESE SKINS ABROAD. THEREFORE THE VALUE WAS TAKEN AT NIL. T HE COURT CAME TO THE ITA NOS. 287(DEL)/2011& 246(DEL)/2012 12 CONCLUSION THAT THERE IS NO QUARREL TO THE FACT THAT THERE WAS NO MARKET FOR THESE SKINS LOCALLY OR ABROAD. SINCE THE MARKET I N UNITED KINGDOM AND UNITED STATES FELL THE ITO COULD NOT QUESTION TH E ASSESSEE AS TO WHY THESE SKINS COULD NOT BE SOLD IN OTHER FOREIGN MARKETS . THEREFORE THE QUESTION WAS ANSWERED IN FAVOUR OF THE ASSESSEE. THE FACTS OF THIS CASE ARE DIFFERENT AS THE ASSESSEE WAS ABLE TO PROVE THAT THERE WA S NO MARKET FOR SALE OF SNAKE SKINS. SUCH IS NOT THE CASE HERE. FIRST OF ALL THE DIESEL SETS IN WHICH THESE SPARE PARTS CAN BE USED HAVE NOT BEEN I DENTIFIED. THESE PARTS HAD BEEN RECENTLY PURCHASED IN THE IMMEDIATELY PRECEDI NG YEAR. THE VALUE HAS BEEN REDUCED IN AN AD-HOC MANNER BY 40% OF THE COST PRICE. NO PRIOR SALE BILL HAS BEEN SHOWN FOR SUCH A REDUCTION. T HE AUDITORS HAVE VALUED THE INVENTORY AT RS. 2 27 05 103/- AS PER REGULAR SYS TEM OF VALUATION. THEREAFTER THE CLAIM HAS BEEN MADE OF REDUCTION OF VALUE BY RS. 12.00 LAKH BY WAY OF COST OF SALES AND SERVICES. AS NO BAS IS HAS BEEN FURNISHED FOR THE SAME IT IS HELD THAT THE LD. CIT(APPEALS) W AS RIGHT IN REFUSING THIS CLAIM. 3.9 IN THE RESULT GROUND NO. 2 IS DISMISSED. ITA NOS. 287(DEL)/2011& 246(DEL)/2012 13 4. GROUND NO. 3 IS IN RESPECT OF CONFIRMATION OF DI SALLOWANCE OF RS. 35 093/- MADE BY THE AO IN RESPECT OF CLUB SUBSCR IPTION FEES PAID FOR SENIOR EXECUTIVE OF THE ASSESSEE-COMPANY. THE I SSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE IN THE CASE OF CIT VS. SU NDRAM INDUSTRIES LTD. 240 ITR 335 AND OTIS ELEVATOR CO. (INDIA) LTD. VS. C IT (1992) 195 ITR 682. THEREFORE THIS ISSUE IS DECIDED IN FAVOUR OF TH E ASSESSEE. 4.1 IN THE RESULT GROUND NO. 3 IS ALLOWED. 5. GROUND NO. 4 IS AGAINST AD-HOC DISALLOWANCE OF 5% OF THE EXPENDITURE INCURRED UNDER THE HEAD MAINTENANCE E XPENSES TELEPHONE EXPENSES AND DEPRECIATION ON VEHICLES. THIS ISSUE ALSO STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION IN THE CA SE OF SAYAJI OIL AND ENGINEERING CO. VS. CIT 169 TAXATION 234 (GUJ.) IN WHICH IT HAS BEEN HELD THAT PERQUISITES PAID TO EMPLOYEES AND DIRE CTORS ARE DEDUCTIBLE EXPENSES. WE ARE ALSO OF THE VIEW THAT THE COMPAN Y IS INCAPABLE OF PERSONAL CONSUMPTION AND THEREFORE IN ITS CAS E THERE CANNOT BE ANY EXPENDITURE OF PERSONAL NATURE. 5.1 THUS GROUND NO. 4 IS ALSO ALLOWED. ITA NOS. 287(DEL)/2011& 246(DEL)/2012 14 6. GROUND NOS. 5 AND 6 ARE RESIDUARY GROUNDS I N RESPECT OF EVIDENCE AND PLEAS ETC. WHICH WILL BE TAKEN IN THE CO URSE OF HEARING. NO PLEA WAS TAKEN AND ADDITIONAL EVIDENCE WAS NOT PRES SED. THEREFORE THESE GROUNDS ARE DISMISSED. 7. WE NOW TAKE UP THE APPEAL OF THE ASSESSEE FO R ASSESSMENT YEAR 2007-08. THE GROUNDS TAKEN BY THE ASSESSEE ARE AS UNDER:- A) ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(APPEALS) HAS ERRED IN LAW AND/OR ON FACTS IN: (I) PASSING THE IMPUGNED ORDER WITHOUT GIVING A SPECIFIC SHOW CAUSE NOTICE IN REGARD TO THE PROPOSED ACTIO N AND DRAWING INFERENCE IN ABSENCE OF DETAILS/ DOCUMENTS/EXPLANATIONS WHICH WERE NEITHER ASKED DURING THE APPELLATE PROCEEDINGS NOR DURING THE ASSESSMEN T PROCEEDINGS. (II) STATING THAT ITEM WISE NET REALIZABLE V ALUE OF THE SPARES UNDER CONSIDERATION WAS NOT SUBMITTED DURING THE AP PELLATE PROCEEDINGS. (III) STATING THAT THE APPELLANT DIMINISHED THE VALUE OF INVENTORY WITHOUT ACCOUNTING THE NET REALIZABLE VALUE. (IV) REJECTING THE CLAIM OF THE APPELLANT THAT THE NET REALIZABLE VALUE OF THE SPARES UNDER CONSIDERATI ON IS NIL. (V) STATING THAT THE JUDGMENT IN THE CASE OF K . MOHAMMED ADAM SAHIB VS. CIT 56 ITR 360 (MADRAS HC) RELIED UPON BY ITA NOS. 287(DEL)/2011& 246(DEL)/2012 15 THE APPELLANT IS CLEARLY DISTINGUISHABLE ON F ACTS AND HENCE THE RELIANCE MADE BY THE APPELLANT ON THIS DEC ISION HAS NOT BEEN FOUND TO BE WELL PLACED. (VI) RELYING ON APPELLATE ORDER FOR THE A.Y. 200 5-06 AS THE DOCTRINE OF RES JUDICATA DOES NOT APPLY TO TAX L AWS. (VII) CONFIRMING THE DISALLOWANCE MADE BY THE LD . ADDITIONAL CIT BEING THE AMOUNT PROVIDED FOR THE DIMINUTI ON IN THE VALUE OF INVENTORY AMOUNTING TO RS.24 534 198/- IN THE PREVIOUS YEAR UNDER CONSIDERATION I.E. 2006-07. 7.1 ALL THESE GROUNDS DEAL WITH DIMINUTION IN TH E VALUE OF INVENTORY ON THE BASIS OF NET REALIZABLE VALUE. IT IS INTER -ALIA MENTIONED THAT THE LD. CIT(APPEALS) ERRED IN REJECTING THE CLAIM OF THE ASSESSEE THAT THE NET REALIZABLE VALUE OF THE SPARES IS NIL. HE OUGHT TO HAVE FOLLOWED THE DECISION IN THE CASE OF K. MOHAMMAD ADAM SAHIB (S UPRA). HE ALSO ERRED IN RELYING ON HIS ORDER FOR ASSESSMENT YEAR 20 05-06 AS THE PRINCIPLE OF RES-JUDICATA DOES NOT APPLY TO TAX PROCEEDINGS. 7.2 IN THIS CONNECTION THE LD. COUNSEL DREW OUR ATTENTION TO PARAGRAPH NO. 4.7 OF THE IMPUGNED ORDER IN WHICH IT IS MEN TIONED THAT NO INDEPENDENT VALUER HAS BEEN ENGAGED AND TECHNICA L EVALUATION HAS BEEN MADE BY THE CIVIL ENGINEERS WHO ARE ON THE PAY ROLL OF THE ASSESSEE. THE TECHNICAL EVALUATION REPORT WAS NOT FURNISHED IN A SSESSMENT OR APPEAL PROCEEDINGS. IT WAS SUBMITTED THAT EVALUATION RE PORT WAS OBTAINED WHEN ITA NOS. 287(DEL)/2011& 246(DEL)/2012 16 APPELLATE PROCEEDINGS WERE GOING ON. THE LD. CIT(APPEALS) HELD THAT SUCH A REPORT OBTAINED AFTER LAPSE OF ABOUT F OUR AND HALF YEARS FROM THE END OF THE RELEVANT PREVIOUS YEAR DOES NOT ADVA NCE THE CASE OF THE ASSESSEE. THEREFORE THE CLAIM WAS REJECTED. THE CASE OF THE LD. COUNSEL IS THAT THE VALUATION MADE BY AN INDEPENDENT VALUER SHOULD HAVE BEEN CONSIDERED. FURTHER OUR ATTENTION IS DRAWN TO CERTAIN PAGES PLACED IN THE PAPER BOOK. PAGE NO. 40 CONTAINS SCHEDULE 5 REGARDING CURRENT ASSETS LOANS AND ADVANCES WHICH SHOWS THE VALU E OF TRADING SPARES AND COMPONENT AT RS. 3 46 685/- AGAINST THE VALUE OF RS. 38 15 851/- IN THE IMMEDIATELY PRECEDING YEAR AND THE VALUE OF STO RES AND SPARES AT RS. 2 44 301/- AGAINST THE VALUE OF RS. 2 30 372/- IN THE IMMEDIATELY PRECEDING YEAR. PAGE 43 CONTAINS SCHEDULE 9 REGARDING CO ST OF SALES AND SERVICES WHERE A SUM OF RS. 45 34 198/- HAS BEEN DEBITED U NDER THE HEAD OBSOLESCENCE/DIMINUTION/DECREASE IN VALUE OF IN VENTORIES. PAGE NO. 49 CONTAINS NOTE NO. 9 OF NOTES ON ACCOUNTS WHICH R EADS AS UNDER:- THE COMPANY HAS PROVIDED DIMINUTION IN VALUE OF CERTAIN ITEMS OF TRADING SPARES DG AUXILIARIES (COMPONENT S) AND STORES AND SPARES AMOUNTING TO 45 34 198 (PREV IOUS YEAR RS. 1 00 11 566) BASED ON MANAGEMENT PERCEPTION CONSI DERING THE ACCOUNTING GUIDELINES FOLLOWED BY THE GROUP AND KE EPING IN CONSIDERATION THE SPECIALIZED NATURE OF SUCH ITEM S WHERE TECHNICAL OBSOLESCE ARE VERY FREQUENT IN VIEW OF THE CHANGING ITA NOS. 287(DEL)/2011& 246(DEL)/2012 17 NEEDS. HOWEVER ITEM-WISE NET REALIZABLE VALUE COULD NOT BE MADE AVAILABLE TO THE AUDITORS FOR THEIR VERI FICATION. 7.3 IN REPLY THE LD. SENIOR DR RELIED ON T HE SUBMISSIONS MADE IN THE COURSE OF PROCEEDINGS FOR ASSESSMENT YEAR 2007- 08. 7.4 WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. THE ISSUE HAS BEEN CONSIDERED BY US IN OUR ORDER FOR ASSESSMENT YEAR 2005-06 (SUPRA). HOWEVER WE T END TO AGREE WITH THE LD. COUNSEL THAT PRINCIPLE OF RES-JUDICATA DOES NO T APPLY TO TAX LAWS. THE DECISION IN ASSESSMENT YEAR 2005-06 WAS RENDERE D UNDER THE FACTS OF THAT YEAR AND NO VALUATION WAS AVAILABLE. IT HAS ALSO BEEN HELD THAT DECISION IN THE CASE OF K. MOHAMMAD ADAM SAHIB (SUPRA) IS NO T APPLICABLE TO THE FACTS OF THE CASE. THE FACTUAL SITUATION HAS U NDERGONE CHANGE IN THIS YEAR. THE ASSESSEE PRODUCED VALUATION REPORT AL BEIT BELATEDLY BEFORE THE LD. CIT(APPEALS). THE ASSESSEE HAS ALSO GIVEN S OME BASIS FOR SAYING THAT SOME SPARE PARTS HAVE BECOME OBSOLETE BECAUSE OF CHANGE IN TECHNOLOGY IN MANUFACTURE OF DG SETS OF E SERIES AND K SERIES. IT IS NO DOUBT TRUE THAT THE VALUATION REPORT WAS OBTAINED VER Y LATE ABOUT FOUR AND HALF YEARS FROM THE CLOSE OF THE PREVIOUS YEAR. IN SPITE OF THIS DELAY WE ARE OF THE VIEW THAT THIS REPORT SHOULD HAVE BEEN CO NSIDERED BY THE LD. ITA NOS. 287(DEL)/2011& 246(DEL)/2012 18 CIT(APPEALS) BY GIVING OPPORTUNITY TO BOTH THE PA RTIES OF BEING HEARD. THIS WAS NECESSARY IN THE INTEREST OF JUSTICE. IN SUCH CIRCUMSTANCES THE MATTER IS RESTORED TO THE FILE OF THE LD. CIT(AP PEALS) WITH A DIRECTION TO CONSIDER THE VALUATION REPORT AND THEREAFTER DECID E THE ISSUE AS PER LAW AFTER HEARING BOTH THE PARTIES. 8. IN THE RESULT: (I) THE APPEAL FOR ASSESSMENT YEAR 2005-06 IS P ARTLY ALLOWED AND (II) THE APPEAL FOR ASSESSMENT YEAR 2007-08 IS T REATED AS ALLOWED FOR STATISTICAL PURPOSES. SD/- SD/- (I.P. BANSAL)) (K.G. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER SP SATIA COPY OF THE ORDER FORWARDED TO:- MAN DIESEL & TURBO INDIA LTD. AURANGABAD MAHARA SHTRA-431136. ADDL. CIT RANGE-6 NEW DELHI. CIT(A) CIT THE D.R. ITAT NEW DELHI. ASSISTANT REGISTRAR.