TaxTMI 
TaxTMI 
1999 (1) TMI 67
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....; 1,422 (4) Sales-tax (Bombay) 90,441 (5) Sales-tax (Calcutta) 11,474 -------- 1,72,054 -------- According to the AO the sales-tax collected has been credited to a separate account and payments made are debited to this account. Since the above said amounts are unpaid at the end of the accounting year, they have been disallowed by the AO when the matter was taken up before the CIT(A) he gave a finding to the effect that the following payments w....
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....Sales Bureau (P) Ltd. vs. CIT 1973 CTR (SC) 44 : (1973) 87 ITR 542 (SC). In the circumstances we do not find any infirmity in the order of the CIT(A) as he has directed the AO to verify the claim of the assessee in respect of the payment made within the time allowed by the sales-tax authorities. While doing so, the AO should keep in mind the observation of the Hon'ble Supreme Court in (1997) 139 CTR (SC) 364 :(1997) 224 ITR 677 (SC) and 1973 CTR (SC) 44 : (1973) 87 ITR 542 (SC). This ground of appeal is dismissed. 4. The next ground of appeal relates to disallowance under s. 40A(2)(b). The AO has disallowed a sum of Rs. 18,000 in respect of rent, running charges and technical services paid to a sister concern and another amount of Rs. 36,000 in respect of running charges of machineries, paid to another sister concern. Both these disallowances have been made under s. 40A(2)(b) of the Act on the ground that it is excessive and unreasonable and has been made to a sister concern. The CIT(A) considered the arguments of the AO and those of the assessee and gave his finding in para 9 of the appellate order as under: "According to this break up of details, the rent alone works out to....
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....r concerns are all Private Limited companies. Suffering the same rate of tax. The assessee-company has also got outside shareholders. The assessee-company will not try to inflate the expenses, because the collaborator's are also the partners and they will not tolerate unnecessary expenditure. In the previous year the company paid Rs. 7,500 p.m. to M/s Kathiswar Metal Tin Works. The AO has allowed this and he has not taken into consideration the fact that besides Rs. 7,500 the company was paying by way of Rs. 9,660 p.m. against Rs. 10,000 paid to M/s Saurashtra Inox Tips (P) Ltd. On the basis of these arguments, the learned counsel for the assessee pleaded that the addition be deleted. 6. After consideration the rival submissions we find that the addition made by the AO and the portion thereof sustained by the CIT(A) are unwarranted as the expenses are fully vouched and the regular books of accounts are maintained by the assessee-company and the sister concern. No presumption can be drawn against the assessee has explained the circumstances under which the machinery has been transferred to Bhavnagar and rent and running charges thereof are payable in respect of use of the premise....
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....he claim may be treated as allowed and necessary relief given." 8. On considering the rival submissions we find that the CIT(A) is justified in directing the AO to admit the claim. As there is no infirmity in the finding of the CIT(A) we confirm his order on this issue. 9. The 4th, 5th & 6th grounds of appeal relate to disallowance of depreciation and investment allowance, addition in respect of purchase of mould and addition in respect of suppressed production. The grievance of the Department is that the CIT(A) has erred in law in setting aside the matter for verification by the AO. The learned Departmental Representative relied on the order of the AO. On the other hand the learned counsel for the assessee pointed out that the set aside matter has been decided afresh by the AO and, therefore, these grounds of appeal have become infructuous. The learned Departmental Representative also conceded these points. In the circumstances these three grounds of appeal are dismissed as infructuous. 10. The 7th and 8th grounds of appeal relate to disallowance of Rs. 12,683 made under s. 40A(2)(b) and of Rs. 13,500 made vide para 9(a) and (9b) of the assessment order. The first item in....
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....rejecting the explanation made by the appellant simply because the purchases were made from sister concern. He had produced before me two types of ball pens, one containing the imported tip and the other containing the one manufactured by the appellant's own company, subsequently to show the difference in quality between the two pens in order to justify the price difference as well. According to the authorised representative the purchases made from the sister concern were superior in quality because of the thicker body and better tip than the one manufactured by the appellant later years and, therefore, the Dy. CIT(SR) was not justified in comparing the purchases of refills of the imported tips from sister concern with an ordinary tip refills of the appellant's own manufacture in the subsequent years. I have examined the contentions of the learned authorized representative. After seeing personally the two types of refills that were produced at the time of hearing. There is no doubt that the one purchased from the sister concern is thicker in body, taller in size and with a foreign tip, lacks definitely superior as compared to the one manufactured by the assessee-company, which defi....
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....ative the Sharp brand pen is certainly superior to easywrite brand, which came to the market recently as compared to the well known Sharp brand, who were the pioneers in the line of business because they were the first to introduce this type of ball pens in the market. The authorised representative also stressed that being a new product in the market, the price were fairly low, in order to push up the sales as compared to the established brands like Sharp brand in the market. 16. As I have already mentioned in the above para, while dealing with the refills, I had examined the two types of ball pens under comparison and noticed that the Sharp brand is certainly superior in quality when compared to the Easy write brand and moreover there was no justification, as rightly pointed by the authorised representative for comparing this year's sale price with the sale price of the immediately succeeding year without knowing the market conditions during that period. The only point for adding this sum of Rs. 13,500 was that the assessee had sold the products to its sister concern. As was rightly pointed out by the authorised representative, the new product in the market will be able to comp....
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....brands of refills have been sold at different rate of discount. Bismi brand of refills are in fact sold to party who owns the Bismi brands and sells the same under this brand. Easywrite brand refills have been sold at 4 per cent discount to parties working in Gujarat where no sales-tax is chargeable, no freight is payable. Only the Echo and Sharp brand of refills are sold to Echo Sharp Marketing Co. at 18 per cent discount, which covers besides 4 per cent of general discount, sales-tax as applicable in each state and other expenses. The sales are made to the sister concerns in order to push up sales and thereby increase production. The sister concern carries substantial advertising, propaganda and this helps in increasing sales. This is not with ordinary dealers. The dealers are dealing in several items and they are not interested in advertisement or make special effort to increase sales. There is no diversion of profit on a large scale from the assessee to the sister concern as ultimately the sister concern has earned profit hardly of 1 to 1.5 per cent. If the assessee-company makes direct sales instead of selling to sister concern the assessee would have incurred sale price etc. ....
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....55,410 on account of sales at a lower rate for extra commercial consideration. 18. When the matter came up before the CIT(A) he carefully considered the detailed working given by the assessee's representative at p. 89 of the paper-book submitted to him. It was found that the quantity of ink sold to the sister concern was only 35,440 kgs. and not 91,882 kgs. as wrongly worked out by the AO. The CIT(A) has noted that the correct figures were placed before the AO. The AO did not consider this aspect at all in the assessment order After re-examination of the details, the CIT(A) found that the actual quantity sold to the sister concern was 37,365 kgs. and not 35,440 kgs. as worked out by the assessee. The reworking done by the CIT(A) has been conceded to by the assessee's representative. The CIT(A) further observed that the rate of Rs. 5 per kg. fixed by the AO was on the high side and he was of the view that the ends of justice would be met by restricting the addition to Rs. 1,12,095 which works out to Rs. 3 per kg. 19. In the appeal before us, the learned Departmental Representative relied on the order of AO whereas the learned counsel for the assessee has contested the addition....
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....unwarranted. It is not proved either by the AO or by the CIT(A) that lower sale price has been adopted by the assessee for extra commercial consideration. In the circumstances we delete the addition in toto. 21. In the 11th ground of appeal, the Revenue is objecting to the CIT(A)'s order in restricting the addition on account of sale of brass scrap to the extent of 50 per cent of addition made by the AO. According to the AO the assessee has shown generation of brass-scrap of 6180.5 kgs. The percentage of generation of scrap shown by the assessee comes to 42.75 per cent. On the other hand in the course of search conducted at Bombay Mr. J.D. Sanghvi, who is director of the assessee-company had stated that one kg. consumption of brass wires gives a scrap of 450 gms. i.e. 45 per cent, Since the assessee consumed 19,456 kgs. And brass rod of 45.3 kgs. the minimum scrap would be generated @ 45 per cent which should be 6,525.6 kgs. whereas the assessee has shown only 6,180.5 kgs. That apart the AO noticed that wholesale rate of sale of brass scrap is Rs. 51 per kg. as per Economic Times dt. 27th March 1989. This was found to be equal to 45 per cent of the average sale-price of brass of....
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....ssessee has not been given a copy of the statement nor was given an opportunity to cross-examine the brass-dealer. It is further pointed out that the AO compared the price with prevailing in March, 1989 whereas he had to see the prevailing prices in 1985-86. Moreover the price shown in Economic Times is of scrap produced from sheet metal. Whereas the scrap generated from manufacturing process of assessee contains oil, and other impurities which cannot be comparable with the scrap referred to in Economic Times. The assessee's counsel has also produced statement of other brass dealers as proof of the market rate prevailing at the time. The learned counsel for the assessee has also relied upon the quantitative details of scrap generated by the assessee-company and copies of invoices relating to the transactions under reference. 24. On considering the rival submission, we find that the addition made by the AO is based on a rough estimate. The AO has relied on the rate quoted in the Economic Times, dt. 27th March, 1989, whereas we are concerned with the accounting year ended on 31st March, 1986, relevant for asst. yr. 1986-87. The statements relied on by the AO in respect of two part....
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....ns for the sale. In this view of the matter, he restricted the addition as in the case of brass scrap to 50 per cent of the addition that was resorted to by the Dy. CIT(SR). 28. Before us, the learned Departmental Representative relied on the order of AO whereas the learned counsel for the assessee vigorously disputed the finding given by the AO as well as by the CIT(A). It is pointed out by the learned counsel for the assessee that the AO has erred in arriving at the percentage of 45 per cent based on his reasoning for the brass scrap. The price of plastic scrap under the normal circumstances cannot be more than 15 per cent to 20 per cent of the virgin material price. The learned counsel has also relied on the quantitative details and invoices relating to the scrap sales given in the paper-book. 29. On considering the evidence on record and the rival submissions, we find that the addition made by the AO is totally unjustified. It is purely based on suspicion and surmises. The AO is not at all justified in adopting the 45 per cent formula as in the case of brass scrap to plastic scrap. Even though we do not have precise technical data, supported by technical certificate as in....
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....ompetition, if any, in case these persons set up business on similar line. The learned representative of the assessee cited several decisions before the CIT(A)- Champion Engg. Works Ltd. vs. CIT (1971) 81 ITR 273 (Bom), V. Damodaran vs. CIT (1967) 64 ITR 26 (Ker), CIT vs. Nchanga Consolidated Coppermines Ltd. (1965) 58 ITR 241 (PC), CIT vs. Bowrisankara Steam Ferry Co. (1973) 87 ITR 650 (AP), Bleeze & Central (P) Ltd. vs. CIT (1979) 120 ITR 33 (Mad), P.S. Subramanyan, ITO vs. Simplex Mills Ltd. (1963) 48 ITR 182 (SC), and Empire Jute Co. Ltd. vs. CIT (1980) 17 CTR (SC) 113 : (1980) 124 ITR 1 (SC). Out of these, the CIT(A) specifically discussed the observations of the Supreme Court in Empire Jute Co. Ltd. vs. CIT and therefore, he has come to a conclusion that the addition made by the AO was justified as the expenditure claimed, was of a capital nature. 34. In the appeal before us, the learned counsel for the assessee reiterated the arguments submitted before the first appellate authority whereas the learned Departmental Representative supported the observations made by the AO and the CIT(A). 35. On considering the rival submissions and the evidence on record we find that the....
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....iring any new asset or any new benefit of an enduring nature. The ex-director and ex-works Manager had access to the secret formula used by the assessee in its manufacturing process and by retaining them in the service of the company even after retirement, the company ensured that there would not be any competition from these persons by setting up rival manufacturing concerns. Thus it is clear that the company was only trying to protect its existing asset so that its business could be carried on smoothly without the apprehended competition from its own retired personnel. It is well settled in law by several decisions of the Supreme Court and of the High Court that expenditure incurred for preservation of protection of a business asset is revenue in nature and not capital expenditure as held in: (i) Dalmia Jain & Co. vs. CIT (1971) 81 ITR 754 (SC); (ii) CIT vs. Delhi Safe Deposit Co. Ltd. (1982) 26 CTR (SC) 411 : (1982) 133 ITR 756 (SC); (iii) CIT vs. Bhawani Prasad Girdharilal (1981) 127 ITR 800 (All); and (iv) Indian Copper Corporation vs. CIT 1976 CTR (Pat) 321 : (1977) 110 ITR 434 (Pat). Reliance is also placed on the decisions (1967) 64 ITR 26 (Ker), CIT vs. Coal....