2015 (6) TMI 516 - AT - Income Tax

Tax Tribunal Allows Revenue's Appeal, Partly Allows Assessee's Cross-Objection for AY, Emphasizes Custom Adjudication

The Revenue's appeals were allowed for statistical purposes, while the Assessee's cross-objection for AY 2006-07 was partly allowed and dismissed for AY ... Additions on account of unexplained expenditure under section 69C - remand for adjudication by customs authority and fresh decision by Assessing Officer - disallowance under section 40(a)(ia) for non-deduction of tax - disallowance of depreciation where plant and machinery not put to useAdditions on account of unexplained expenditure under section 69C - remand for adjudication by customs authority and fresh decision by Assessing Officer - Addition made under section 69C in both AY 2006-07 and AY 2007-08 was not finally adjudicated and was restored to the file of the Assessing Officer for decision after conclusion of customs adjudication. - HELD THAT: - The Tribunal recorded that the finding of the customs authority would have a bearing on the addition made under section 69C and that a statement recorded before the Directorate of Revenue Intelligence could not, by itself, suffice to sustain the addition. Both parties agreed that the matter should await the outcome of the customs adjudication. The Tribunal therefore set aside the CIT(A)'s deletion and restored the issue to the AO to enquire whether the customs adjudication has been passed and to decide the addition thereafter, directing the assessee to cooperate in furnishing requisite information. [Paras 5, 10]Issue remanded to the Assessing Officer for fresh decision after adjudication by the customs authority; CIT(A)'s order set aside and Revenue's appeals allowed for statistical purposes.Disallowance under section 40(a)(ia) for non-deduction of tax - Disallowance under section 40(a)(ia) for freight, clearing and forwarding payments in AY 2006-07 was restricted to the service charges component only and the AO was directed to recompute the disallowance. - HELD THAT: - The Tribunal noted that the CIT(A) did not dispute the assessee's contention that the payments lacked any income/profit element and that in the succeeding year the disallowance had been restricted to service charges paid to the CHA. Applying consistent treatment, the Tribunal held that in AY 2006-07 the disallowance ought to be limited to the service charge portion and directed the Assessing Officer to recompute the disallowance accordingly. [Paras 7]Disallowance restricted to service charges; AO to recompute the disallowance.Disallowance of depreciation where plant and machinery not put to use - Disallowance of depreciation on plant and machinery in AY 2006-07 was upheld because the assets were not used in the year and the assessee failed to place material to show they were operated or used. - HELD THAT: - The Tribunal observed that the plant and machinery were admittedly not used during the year under consideration and that counsel for the assessee could not produce any material showing use or operation of the assets. On these facts the Tribunal found no reason to interfere with the CIT(A)'s confirmation of the disallowance of depreciation. [Paras 9]Disallowance of depreciation upheld; assessee's ground rejected.Disallowance under section 40(a)(ia) for non-deduction of tax - Disallowance of clearing and forwarding expenses under section 40(a)(ia) in AY 2007-08 was sustained in line with the Tribunal's treatment for AY 2006-07. - HELD THAT: - Applying the reasoning adopted for AY 2006-07, the Tribunal found no reason to take a contrary view for AY 2007-08 and therefore rejected the assessee's challenge to the CIT(A)'s confirmation of the disallowance. [Paras 11]Assessee's cross-objection dismissed; disallowance under section 40(a)(ia) for AY 2007-08 upheld.Final Conclusion: The Revenue's appeals are allowed for statistical purposes by restoring the disputed section 69C additions to the AO for reconsideration after customs adjudication; the assessee's cross-objection for AY 2006-07 is partly allowed by restricting the section 40(a)(ia) disallowance to service charges but its challenge to depreciation disallowance is rejected; the cross-objection for AY 2007-08 is dismissed. Issues Involved:Appeals by Revenue and cross-objections by Assessee against orders of CIT(A) for AYs 2006-07 & 2007-08 regarding unexplained expenditure, non-deduction of tax, disallowance of depreciation, and clearing and forwarding expenses.Analysis:Issue 1: Unexplained Expenditure for AY 2006-07The Revenue appealed against the deletion of addition of Rs. 39,37,338 under section 69C. The AO made the addition during scrutiny assessment, but the CIT(A) partly allowed the appeal. The Tribunal noted that the finding of custom authorities would impact the case. The issue was restored to the AO pending adjudication by custom authorities, and the AO was directed to reexamine the issue post-adjudication. The Revenue's appeal was allowed for statistical purposes.Issue 2: Disallowance of Expenses for AY 2006-07Assessee's cross-objection challenged the disallowance of freight and clearing expenses of Rs. 5,59,273 under section 40(a)(ia). The Tribunal found that the disallowance should be limited to service charges, not the entire amount. The AO was directed to recompute the disallowance accordingly. The cross-objection was partly allowed for statistical purposes.Issue 3: Disallowance of Depreciation for AY 2006-07Assessee's cross-objection contested the disallowance of depreciation on plant and machinery. The Tribunal upheld the disallowance as the assets were not used during the year. The cross-objection was dismissed.Issue 4: Unexplained Expenditure for AY 2007-08The Revenue appealed against the deletion of addition of Rs. 63,79,100 under section 69C. Following the reasoning from the previous year, the Tribunal set aside the CIT(A) order, allowing the Revenue's appeal for statistical purposes.Issue 5: Disallowance of Expenses for AY 2007-08Assessee's cross-objection challenged the disallowance of clearing and forwarding expenses under section 40(a)(ia). The Tribunal upheld the disallowance, consistent with the previous year. The cross-objection was dismissed.In conclusion, the appeals by Revenue were allowed for statistical purposes, cross-objection for AY 2006-07 was partly allowed, and cross-objection for AY 2007-08 was dismissed. The Tribunal emphasized the importance of proper adjudication by custom authorities and directed the AO to reexamine certain disallowances based on the findings. The judgment was pronounced in 2015 at Ahmedabad.