TaxTMI 
TaxTMI 
2011 (12) TMI 345
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....tage of cash. He offered both these amounts for taxation. However, at the time of filing the return, only excess stock of Rs. 1,44,25,183/- was included in the total income. The short cash of Rs. 80,31,100/- was not included in the income. Assessment u/s 143(3) was completed on 29.12.2009 at total income of Rs. 9,27,85,010/-. While computing the total income the short cash amounting to Rs. 80,31,100/-, unclaimed liabilities aggregating to Rs. 2,36,904/-, Rs. 2,17,11,006/- deducted from salaries paid to the employees by way of contribution to provident fund and ESI but not deposited in the relevant accounts before the due date defined u/s 36(1)(va), Rs. 20.00 lakh relatable to interest expenditure and Rs. 10,27,038/- in respect of advertisement expenses were added or disallowed, as the case may be. These additions/disallowances were deleted by the CIT (Appeals)-XIII, New Delhi, in the impugned order. Aggrieved by this order, the revenue is in appeal before us. 2. In regard to ground nos. 1 and 2 dealing with perversity of the impugned order and addition of Rs. 80,31,100/- in respect of short cash on the date of survey, the ld. CIT, DR referred to the facts that excess stock and s....
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.... the authorized officers to obtain surrender of income by force. It is further submitted that cash discrepancy by itself is a material factor to come to the conclusion that the books of account are not reliable. The assessee was not able to furnish any explanation at the time of survey. If the claim made now had been submitted to the survey party, it had the option to go to other places u/s 133A to examine the truthfulness of the claim. It is also submitted that the remarks made in the note regarding surrender by coercion or pressure stand refuted by the assessee itself when in the return the excess stock was offered for taxation. It is argued that since the assessee had not come out clean in this matter, the test of human probabilities should be employed in testing its claim made in the return of income. If so done, the conclusion which can be drawn is that the ld. CIT (Appeals) ought to have confirmed the addition made by the AO in respect of short cash. 5. We have considered the facts of the case and submissions made before us. We may initially examine the evidence on record in this matter. Page nos. 22 and 23 of the paper book contain the statement of Shri Mahinder Pal, the ....
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....s a matter of fact on record that the contents of this note have not been acted upon fully as the discrepancy in stock was offered for taxation at the time of filing the return of income, when no pressure or coercion existed in fact or perceived. Therefore, the contents of this note have to be taken in the light of subsequent facts brought by the assessee itself on record of the revenue. 6. Having described the facts brought to our notice, we may discuss the cases relied upon by the rival parties to support their respective positions. 6.1 In the case of Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18, Hon'ble Supreme Court observed that it is no doubt true that entries in the account books of the assessee amount to an admission that the amount in question was laid out or expended for cultivation, upkeep or maintenance of immature plants from which no agricultural income was derived during the previous year. An admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the person who made the admission to show that it is incorrect. The ld. CIT, DR stressed on the finding that an admission is an ex....
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....icers of Income Tax Department. Reliance has also been placed on the decision of Hon'ble Delhi High Court in the case of Airports Authority of India v. Central Board of Excise & Customs [2007] 207 CTR 196. The only grievance of the petitioner was that the respondents have recovered a sum of Rs. 20.00 crore as service tax under threat and coercion. It has been held that writ jurisdiction is purely discretionary especially when the petitioner is seeking writ of mandamus. There is nothing before court to show that any of the respondents threatened, coerced or harassed the petitioner for paying the amount. On the contrary, the letter which the petitioner himself has placed on record, sufficiently shows that the sum of Rs. 20.00 crore has been voluntarily offered by the petitioner pending finalization of the assessment. The fact that payment is made under protest does not mean that the same is made because of any coercion or harassment. The case of the ld. CIT, DR is that the assessee has himself offered major amount for taxation relating to discrepancy in stock. The assessee has changed his stand while suggesting notes on accounts, which has also been partly changed subsequently. S....
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....ce should not be placed on various cases which have been decided on the facts of those cases. He relied only on the decision in the case of Abhi Developers v. ITO [2007] 12 SOT 444 (Ahd.). In this case, it has been held that no evidentiary value can be attached to a statement recorded u/s 133A unless it is supported by some material. The assessee was a civil contractor. In the course of survey a diary was found in which details of receipt of "on-money" was recorded. Statement of one of the partners was recorded, who agreed to pay tax on the "on-money". The assessee filed return as per provision contained in section 44AD, declaring net profit of 9.56% of the total consideration. The AO made the addition of the "on-money". In coming to the conclusion that the addition was not warranted, the Tribunal noted two facts that-(i) the assessee had declared profit of more than 8% of total sales, and (ii) there was no evidence or material on record to make the addition of "on-money". 7. Thus, the facts are that survey was conducted at the business premises of the assessee on 08.01.2007. Two important facts were recorded, i.e., excess stock of Rs. 1,44,25,183/- was found and there was cash ....
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....till remains as to whether an addition has to be sustained on the basis of evidence on record or merely because the assessee has been taking shifting stands. Further, there is unanimity of opinion that statements u/s 132(4) and 133A stand on different footings. The statement recorded u/s 132(4) is on oath and the statute specifically provides that this statement can be used for the purpose of the Act. On the other hand, statement u/s 133A is not on oath and the section does not provide that it can be used for the purpose of the Act. Therefore, evidentiary value of statement u/s 133A is much lower than the evidentiary value of statement u/s 132(4). There is another factor in this case that the fact discovered regarding shortage in cash ipso facto does not lead to inference of earning income of Rs. 80,31,100/-. The statement is in relation to the inference to be drawn rather than the position of fact. The question is-whether, a statement regarding inference can be binding without any further evidence of the actual earning of income? We find that even if the explanation of the assessee that the cash is lying elsewhere is not accepted and, therefore, there is an actual discrepancy in c....
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....ect of some creditors. The details showed 53 entries involving aggregate sum of Rs. 20,68,550/-, where the opening and closing balances are the same. These entries of unclaimed liabilities have been pending for more than one year. A chart has been furnished submitting the details of these creditors at the end of the year and the treatment given to them in the succeeding year. This chart shows that there are still liabilities aggregating to Rs. 2,36,904/- which have not been paid even in the succeeding year. Therefore, this amount has been brought to tax under section 68. 8.1 In the impugned order, it is mentioned that ostensibly the addition made by invoking the provision contained in section 41(1) as the provision contained in section 68 is not applicable for the simple reason that these credits were not made for the first time in this year in the books of account. Therefore, the addition has been made on the ground that these liabilities have ceased to exist. The provision contained in section 41(1) is applicable only when the liability ceases to exist etc. This condition is not satisfied because the assessee has shown the liability in the books of account thereby holding itse....
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....n fund under any Act, Rule, Order or Notification issued thereunder or under any standing order, award, contract of service or otherwise." The respective Acts put the due date at the 21st day of immediately following month, which includes relaxation period provided u/s 14B of the Provident Fund Act. The payment has not been so made. Therefore, the addition of Rs. 2,17,11,006/- has been made. The case of the ld. CIT, DR is that the provision contained in section 2(24)(x) deems any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees' State Insurance Act, 1948 (34 of 1948), or any other fund for the welfare of such employees to be the income in the first instance. Section 36(1)(va) allows the deduction in respect of any sum received by the assessee from any of his employees to which the provision of section 2(24)(x) applies if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date. The definition of the term "due date" is contained in the Explanation, which has been reproduced earlier. Further, the....
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....ispute. The deduction of such amounts has been considered by Hon'ble Supreme Court in the case of Alom Extrusions Ltd. (supra). It has been held that the Finance Act, 2003, is curative in nature, hence it is retrospective and it would operate with effect from 01.04.1988, when the first proviso came to be inserted. In the light of this judgment, the aforesaid amount becomes deductible in computing the income of this year u/s 43B of the Act. Thus, even if the amount is not deductible u/s 36(1)(va), it is deductible u/s 43B. Accordingly, this ground is also dismissed. 11. Ground no. 5 is that the ld. CIT (Appeals) erred in deleting the addition of Rs. 20.00 lakh, made by the AO by invoking provision u/s 36(1)(iii) in respect of diversion of interest-bearing funds to its subsidiary company. 11.1 It was observed by the AO that the auditors report mentioned that the assessee-company has granted interest-free unsecured loans to its subsidiary company. The maximum amount outstanding in the year was Rs. 8.09 crore and the balance at the end of the year was Rs. 1.00 crore. The assessee has also claimed the deduction of interest in this year. In this connection, the assessee was req....
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....lso submitted that while advances went up to the extent of Rs. 8.09 crore, the profit of the assessee in this year was only about Rs. 5.00 crore. Therefore, it has been argued that either the findings of the AO may be restored or the matter may be remanded to the AO/ld. CIT (Appeals) for deciding the issue in the right perspective after taking all facts into account. 11.4 In reply, the ld. counsel made references to the paper book. Page nos. 13 to 19 contain the explanation tendered by the assessee before the ld. CIT (Appeals). It is stated that the assessee had its own interest-free funds of about Rs. 20.37 crore. The AO has committed an error in arriving at such funds because the depreciation claimed on fixed assets has not been added back. The provision contained in section 36(1)(iii) were explained that interest should be payable on borrowed capital which has been used for the purpose of business for claiming deduction. It is further stated that all advances were made from a separate account in which only sales were credited. Therefore, the advances have no nexus with the borrowings. Page nos. 26 to 31 contain the explanation of the assessee. In paragraph no. 7, it is stated....
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....nkam Enterprises are not for the purpose of business? 12.1 At this stage, we may examine the cases relied upon by the rival parties. The ld. CIT, DR relied on the decision in the case of Marolia & Sons v. CIT [1981] 129 ITR 475 (All.). In the decision, it has been mentioned that for getting deduction of interest u/s 36(1)(iii), there should be a borrowing for the business purpose on which interest has been paid. From the statement of the case, it would appear that from the borrowings made by the firm, a large amount has been given to Ram Deo Marolia for his personal purposes. As the borrowings had not been used for the business of the assessee-firm, the Tribunal held that the deduction claimed by the assessee was not admissible. Argument of the ld. counsel for the assessee was since the borrowing was made for the purpose of business, the interest paid thereon should be deducted irrespective of final utilization of the money. This argument has not been accepted by the court. It was opined that the question of disallowance of interest on borrowings was not a different question, but another aspect of the same matter and, thus, purpose of borrowing and its utilization were inextrica....
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....ntain "other deductions" whereas section 40 is a limit on the deduction. Therefore, even if the assessee is entitled to deduction u/s 36(1)(iii), the assessee would not be entitled to claim deduction for interest payment exceeding 18/12% per annum. In this case, the loans were granted in August/September, 1991, which continued up to assessment year 1997-98. The loans were advanced for the business purpose and the interest thereon did not exceed 18/12% per annum. The payment of interest was allowed in earlier assessment years. Therefore, it was held that the assessee was entitled to deductions under both the provisions as indicated in the order. 12.5 On examination of the facts on record, it is seen that the monies were advanced from the current account, in which only sale proceeds were credited. The claim of the assessee is that such advances arising out of this account had no nexus with the borrowings which were credited in another account. We are not in agreement with this argument. The reason is that sales contain only a small portion of profit, which can be said to be the money belonging to the assessee. The bulk of the amount is spent in purchasing raw-material and in the p....
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....he company. The payment was made to Roller Act Press Services for printing of product catalogue and folder. The AO held that these payments were in pursuance of a works-contract and, therefore, the assessee should have deducted tax at source by dint of provision contained in section 194C. The tax had not been deducted. Therefore, the amount was disallowed by invoking the provision contained in section 40(a)(ia). 13.2 Before the ld. CIT(A), it was submitted that the manufacture and supply of a product in accordance with the specification of the assessee does not amount to a works contract as it has not supplied any material. Therefore, the provision contained in section 194C does not apply. The ld. CIT (Appeals) considered the facts and submissions made before him. It has been held by him that purchase of advertisement material from a person without supplying any material used in preparation of the material cannot be termed as "works contract". Therefore, the provision contained in section 194C is not applicable. Accordingly, the addition has been deleted. 13.3 The ld. CIT, DR referred to the fact that diaries, catalogue and folders were prepared and supplied to the assessee b....