TaxTMI 
TaxTMI 
2012 (4) TMI 416
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.... 4. Briefly the facts of the case are that the AO disallowed depreciation amounting to Rs.12,82,17,500/- in respect of various assets made during the year which included integrated software purchased, SAESA 1005 IMP Machine, Component for PLT, Control Panels, Hot Foil Stamping Machine, Lab testing equipment, utilities for PLT, dyes and moulds for INDG etc. mainly pertaining to Unit-2, Unit-3 and Unit-4 for the year under consideration. The disallowance has been made on the following grounds. The details have been discussed by the AO in the assessment order. The software and machineries were purchased from associated concern viz. Vimpson Precision Pvt. Ltd., Suraksha Petro Chemicals Pvt. Ltd., Modern Precision Industries and Sampat Rao. A survey was conducted at the office premises of the assessee on 15-03-2005 and during the survey no fixed assets registered was found to have been maintained at the office premises and various assets were not found physically at the factory premises. Later on, the assessee produced the fixed assets register, where the additions to fixed assets were written in the register in different pen and with Sr. No. suffixed with "A". The asset valuation repor....
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....GAD of Govt. of Gujarat, Home Deptt. of Gujarat, Ran Baxi Laboratories Ltd., Adani Willmar Ltd. and many other large size organizations. The assessee has submitted that the addition in plant and machinery also includes the items other than integrated software such as insulation for RCC tanks, treating equipments, air cool compressors, air cooled compact water chillers, dyes and moulds, which have been acquired from Vimpson Precision Pvt. Ltd., Modern Precision Industries and Suraksha Petrochemicals Pvt. Ltd. The assessee further submitted that software is an intangible asset and it is loaded in the system of the machineries and it cannot be physically found in the premises during the course of survey and any technical can only ascertain whether it is loaded in the system or not. Hence, the AO was not justified to say that no software found and seen at the factory premises. Further, in the valuation report found at the time of survey, which was prepared by Dalal Mott MacDonald, there is mention of automation for machinery and the existence of software and even the AO has accepted these facts and credit for part of the amount is to be given. When the AO was not accepting the existenc....
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.... is not justified. The A. O. is directed to allow the depreciation in respect of all the software purchased and installed during the year. 5.5 However, as regards the tangible assets, the submission of the appellant cannot be accepted. During the survey, it was found by the survey team that these assets were not there in the premises and if the appellant had any objection regarding the list of the assets in the survey report, the same has to be objected there itself and ought to have corrected. Making of objection at this stage that survey was not conducted properly and listing of assets was not done properly cannot be accepted. The submission that the assets have been broken or tore off during this period cannot help the appellant to explain the absence of assets at the time of survey. When the assets were not found at the time of survey, it is clear that the claim of the appellant is not acceptable. Also the valuation report prepared by Dalal Mott MacDonald says that the specific items of the machineries are not there to support the claim of the appellant. Therefore the action of the A. O. in disallowing the depreciation on the tangible assets like 24 Cavity Mould and other mo....
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....alal Mott MacDonald. He has, therefore, submitted that the claim of the AO is incorrect and assessee produced all the relevant materials to support the contention. He has submitted that since full details of tangible assets were also filed which are part of the report and the record of the assessee, therefore, the matter could be restored to the file of the AO for allowing claim of depreciation on tangible assets. He has submitted that as regards depreciation on intangible assets, learned CIT(A) on proper appreciation of facts rightly deleted the addition. 6. We have considered the rival submissions and material on record. The assessee claimed that due to financial crisis the details could not be produced at the time of survey which is not in dispute and is also supported by the fact that assessee filed the return of income declaring losses of Rs.19.95 Crores. The assessment year under appeal is 2002-03 and survey is conducted after several years on 15-03-2005. The asset valuation report of Dalal Mott MacDonald of May, 2003 was found during the course of survey. Copy of the said report is filed on record which valuation report is prepared, on the basis of information, data and p....
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....g depreciation in respect of all the software purchased and installed during the year. Further, the AO denied claim of the assessee because no fixed assets register was maintained by the assessee but same was produced before the AO subsequently. Some statements were recorded during the course of survey but it is not clear from the assessment order whether the same were supplied to the assessee for allowing their cross examination on behalf of the assessee. Unless, cross examination is allowed to such statements, the same cannot be used in evidence against the assessee. Merely because the parties who had supplied assets to the assessee have not responded to the notice of the AO may not be a ground for denying claim of the assessee on tangible assets. The learned CIT(A) also failed to consider that specific items of tangible assets are recorded in the report of Dalal Mott MacDonald. Since the material supplied by the assessee is not examined in detail and complete details of the assets are recorded in the report of valuation prepared prior to the survey at the instance of IDBI, therefore, we are of the view the matter as regards depreciation on tangible assets requires reconsideratio....
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....CIT(A) merely directed the AO to allow the claim of the assessee as per law. We, therefore, do not find any merit in this ground of appeal of the revenue. The same is accordingly dismissed. 10. There is no other ground of appeal in the departmental appeal. Departmental appeal in ITA No. 298/Ahd/2006 is accordingly dismissed. 11. On ground No.1 in the appeal of the assessee, the assessee challenged the order of the learned CIT(A) in not allowing claim of bad debts u/s 36 (1) (vii) of the IT Act. The AO disallowed claim of bad debts in a sum of Rs.18,89,51,846/-. The AO observed that assessee has shown sales to the same parties during the year as well as in subsequent year. Payments were also received against the same; therefore, there was no bad debt. The reply of the assessee was not accepted and as regards four parties including bad debts written off earlier year and claim was denied. It was submitted before the learned CIT(A) that debts have been written off as irrecoverable in the accounts of the assessee and the assessee fulfilled all the conditions of the above provision. The learned CIT(A) noted that AO has brought on record that debts which are written off are current ....
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....set aside the orders of the authorities below and delete the addition. In the result, ground No.1 of the appeal of the assessee is allowed. 14. On ground No.4 of the appeal of the assessee, the assessee challenged levy of interest u/s 234B, 234C and 234D of the IT Act. The learned Counsel for the assessee submitted that charging of interest u/s 234 B and 234C of the IT Act are mandatory and consequential in nature and did not press the same. The same is accordingly dismissed. However, as regards levy of interest u/s 234D of the IT Act, he has submitted that the said provision was inserted in the Act with effect from 01-06-2003, therefore, same is applicable only from assessment year 2004-05 onwards and not from the earlier assessment year. He has relied upon decision of the Hon'ble Delhi High Court in the case of Director of Income Tax Vs Jacabs Civil Incorporated / Mitsubishi Corporation, 194 Taxman 495 in which it was held that such interest could be charged u/s 234D of the IT Act from assessment year 2004-05. The learned DR did not dispute the same proposition of law. Considering the above provisions, in the light of decision of the Hon'ble Delhi High Court above we set aside....
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....he assessment u/s 147 of the IT Act. Same are accordingly dismissed. 24. On ground Nos. 3 and 4, the assessee challenged the disallowance of insurance expenses of Rs.50,11,623/- and in alternate claim it is stated that if the insurance expenses are disallowed, corresponding insurance receipts offered as income amounting to Rs.1,25,87,770/- may be excluded from the total income of the assessee. 25. The learned CIT(A) noted that the AO disallowed insurance expenses of Rs.50,11,623/- claimed by the assessee on account of loss incurred during the fire at Moti Bayan Plant and damage of machinery, building, raw materials and finished goods. The assessee debited these amounts in the books of accounts on estimate basis which was disallowed by the AO saying that it was only a contingent liability. The assessee submitted that the claim of the assessee should be allowed or the income offered from insurance receipt may be excluded from the total income. The learned CIT(A) did not agree with the submission of the assessee because the insurance receipt was offered as income which was rightly taxed by the AO. The assessee has already capitalized the machinery, building etc. in its block of ....
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....he AO shall give reasonable sufficient opportunity of being heard to the assessee before passing the order on these grounds. In the result, ground Nos. 3 and 4 of the appeal of the assessee are allowed for statistical purposes. 27. On ground No.5, assessee challenged the disallowance of interest and finance charges of Rs.4,21,74,334/- . On ground No.6, assessee challenged the disallowance of legal and professional charges of Rs.65,87,500/-. On ground No.7, assessee challenged the disallowance of interest on redemption of FCB of Rs.43,86,000/-. On ground No.10, assessee challenged the disallowance of depreciation on assets amounting to Rs.41,58,747/-. All these grounds are connected, therefore, taken up together for the purpose of disposal. It is stated that the assessee Company filed return of income in response to notice u/s 148 of the IT Act and has made additional claims on these expenses. Such claims were not made in the original return of income. The AO rejected the claim of the assessee in view of the decision of the Hon'ble Supreme Court in the case of CIT Vs Sun Engineering Works Ltd., 198 ITR 297 in which it was held that the proceedings u/s 147 are meant for the benefi....
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....end and profit on sale of raw material. The learned Counsel for the assessee did not press part of this claim in respect of other income i.e. sundry balance written back, misc. income, dividend and profit on sale of raw material. These grounds are accordingly dismissed. The learned Counsel for the assessee as regards insurance claim submitted that the issue is covered by the decision of the Hon'ble Delhi High Court in the case of CIT Vs Sportking India Ltd., 324 ITR 283 in which it was held that the sum received from insurance company as compensation for goods destroyed by fire - is derived from industrial undertaking and to be included in profits of business for the purpose of deduction u/s 80 IA of the IT Act. We, therefore, following the decision of the Hon'ble Delhi High Court, direct the AO to allow deduction u/s 80 IA of the IT Act on insurance claim. As far as the netting of other income is concerned, the same is not allowable in view of the decision of the Hon'ble Bombay High Court in the case CIT Vs Asian Star Co. Ltd., 326 ITR 56 held as under: "In the circumstances, we allow the appeal by holding that the Tribunal was not justified in coming to the conclusion that the....
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....ion of the Hon'ble Punjab & Haryana High Court in the case of Rani Paliwal, 268 ITR 220 rejected the claim of the assessee because the gross interest income is to be reduced from business profits while calculating deduction u/s 80 HHC of the IT Act. The learned Counsel for the assessee stated that the issue is covered against the assessee by the decision of the Hon'ble Bombay High Court in the case CIT Vs Asian Star Co. Ltd., 326 ITR 56 in which it was held as under: "In the circumstances, we allow the appeal by holding that the Tribunal was not justified in coming to the conclusion that the net interest on fixed deposits in the bank received by the assessee should be considered for the purpose of working out the deduction under section 80 HHC and not the gross interest. The question of law would accordingly stand answered in the aforesaid terms in favour of the Revenue and against the assessee. There shall be no order as to costs." In view of the above, ground Nos. 15 and 16 of the appeal of the assessee are dismissed. 34. On ground No.17, the assessee challenged the disallowance of Rs.58,88,574/- out of purchase expenditure by treating the same as bogus purchases. The fa....
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....minating material was found in search of excise department against the assessee which prompted the AO to hold the purchases as bogus made from Gujarat Pickers Industries Ltd. in assessment year under appeal. No finding is given against the assessee in assessment year 2002-03. Nothing is explained as to whether the proceedings before central excise department have any relation with the proceedings under assessment year in appeal. The learned DR rightly contended that parties are different in the assessment year under appeal as compared to the parties considered by the Tribunal in the order dated 21-10-2011. Further, the evidences filed by the assessee on this issue have not been commented to by the AO. The AO should specifically point out as to which of the material was found against the assessee relating to the assessment year under appeal. In the absence of any evidence found against the assessee in search for the assessment year under appeal, no addition could be made against the assessee. The order of the AO on this issue is thus nonspeaking and cannot be sustained in law. Accordingly, we are of the view the matter requires reconsideration at the level of the AO. We accordingly,....
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....be followed. In assessment year 2002-03, we have decided the cross appeals in ITA No.298/Ahd/2006 and ITA No.338/Ahd/2006 and the departmental appeal has been dismissed confirming depreciation on software i.e. intangible assets and restored the issue of claim of depreciation on tangible assets to the file of the AO. By following the order of the Tribunal for assessment year 2002-03 above, the departmental appeal is dismissed and the appeal of the assessee is similarly allowed for statistical purposes on this issue. 42. On ground No.4, the assessee challenged the direction of the learned CIT(A) in restricting the disallowance to the extent of 25% on disallowance of Rs.3,08,17,231/- made by the AO on account of nongenuine purchases. The revenue has raised ground No.4 challenging the deletion of addition and granting part relief of Rs.2,31,12,921/- on the same issue of bogus purchases. 43. Briefly, the facts of the case as noted in the order of the learned CIT(A) are that during the search operation carried out by the central excise department on 15-02-2002 (though it has been reported wrongly as 15-06-2002), it was noticed that assessee had shown purchases from five parties nam....
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..... and counter filed by the A. R. It is seen that during the course of assessment proceedings, in response to letters issued to the above parties, all the parties had furnished the details except one party i.e. Ideal Petro Products Ltd. which did not furnish any reply. The A. O. has disallowed purchases from two parties i.e. Gujarat Pickers Industries Lted. And Labdhi International. As regards purchases from these parries, it is the contention of the A. R. that the purchases have been made from them and goods have been received. It is stated by the A. R. that Central Excise search was on 15/16-02-2002 and the Excise department has conducted audit of daily stock account for the period from 16-02-2002 to 31-12-2002 in February 2003 and has not given any adverse comments for the said period, a copy of the report has been filed at pages 1229 to 1230 of paper book. Moreover, it was argued out by the A. R. that after Excise search the appellant would not have liked to receive bills without goods. However, as per the findings of Central Excise department, only bills have been received without actual receipt of goods though for period prior to 15-2-2002. As it is likely that the appellant w....
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....d end on 31-03-2003 for assessment year 2003-04 under appeal. The search is conducted on 15-02-2002; therefore, there is no question of recovery of any incriminating material against the assessee in the search for the assessment year 2003-04. The authorities below merely on going through the findings in earlier year followed the order for holding bogus purchases made by the assessee. The assessee explained before the learned CIT(A) that no sufficient opportunity was given to produce the documents on this issue, therefore, additional documents were filed at the appellate stage on which remand report from the AO was called for, but the AO has not given any finding against the assessee based on the additional evidences. The concern parties have furnished details and also filed confirmations even as per findings of the AO. Nothing is brought on record if any adverse findings were given by central excise authorities against the assessee for assessment year under appeal. The learned CIT(A) in substance accepted the claim of the assessee but merely on presumption and assumption observed that it is likely that the assessee would continue to receive bills without actual delivery. The findin....
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....se grounds are accordingly dismissed. 49. In the result, appeal of the assessee in ITA No.1510/Ahd/2009 is partly allowed. 50. On ground No.2 in the departmental appeal, revenue challenged the deletion of addition of Rs.10,55,53,967/- u/s 36(1) (iii) of the IT Act. During the course of assessment proceedings, the AO noticed that the assessee debited Rs.49,16,26,051/- under the head interest and other charges out of which the AO disallowed Rs.41,60,72,084/- u/s 43B of the IT Act. Thus net interest claimed by the assessee for the year under consideration was of Rs.7,55,53,967/- and another amount of Rs.3,00,00,000/- was also claimed as interest paid of earlier year u/s 43B of the IT Act. On being asked to justify the allowability of interest claim in view of provisions of section 36(1) (iii) of the IT Act, considering the fact that huge loans and advances to the tune of Rs.98,51,92,997/- were granted to various parties, on which no interest was charged by the assessee, the assessee submitted that major advances were for the purpose of purchase of raw material etc. and the interest claimed was allowable as the monies were utilized for the purpose of the business. After discussin....
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....l other case laws i.e. CIT Vs Radico Khaitan Ltd., 274 ITR 354 (All.), CIT Vs Tin Box Co., 260 ITR 637 (Del.), CIT Vs Prem Heavy Engineering Works Pvt. Ltd., 285 ITR 554 (All.), CIT Vs Britania Industries Ltd., 280 ITR 525 (Cal.) and other cases. It was submitted that recently the Hon'ble Supreme Court has held that in case of loans to associate concerns and/or outside parties, commercial expediency from the businessman's point of view has to be taken into consideration and while doing so, revenue cannot sit in the arm-chair of the assessee. For this, the learned Counsel for the assessee relied upon the decision in the case of S. A. Builders Ltd. Vs CIT, 288 ITR 1 (SC) and contended that when the total interest free advances did not exceed the total interest free funds available with the assessee, no interest was disallowable on account of utilization of funds for non-business purposes. 50.2 The learned CIT(A) considering the explanation of the assessee deleted the entire addition. His findings in Para 5.3 are reproduced as under: 5.3 I have considered the facts of the case and the submissions as advanced by the A. R. along with the judicial decisions relied upon. From the de....
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.... Thus, these were found to be business advances. It was further found that the assessee is having sufficient own funds, therefore, there is no question of diversion of interest-bearing funds for giving loans and advances. The decision cited by the learned Counsel for the assessee squarely applies to the case of the assessee. Accordingly, we do not find any justification to interfere with the order of the learned CIT(A). Ground No.2 of the departmental appeal is accordingly dismissed. 53. On ground No.3, the revenue challenged the deletion of addition on account of loss on sale of raw materials of Rs.2,69,86,470/-. The AO notices that there was a substantial fall in the gross profit during the year under consideration as compared to earlier year, as gross profit for the year under consideration was 30.19% as against 45.69% of the preceding year, thus there was a differenced in gross profit rate by 15.41%. The AO also found from the order of the Commissioner of Central Excise (Adjudication), Ahmedabad dated 30-12-2005 that the Assessee Company was engaged in various activities of manipulating its financial affairs by debiting bogus purchases. The AO noticed that the assessee had d....
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....on and admission of the additional evidences under Rule 46A of the IT Rules wherein the reasons for not placing the evidence at the appellate stage have been narrated in detail and it was only after analyzing the said submission in the reasoning, the learned CIT(A) admitted the evidences and directed the AO to look into the same and once the learned CIT(A) directed the AO to look into the additional evidences, it was not open to the AO to just brush aside t he evidence in a summary manner. The learned Counsel for the assessee also submitted that huge volumes of additional evidences are in order and the AO did not find any mistake in the same and hence, he has not commented on any of them. 54. The learned CIT(A) considering the explanation of the assessee deleted the addition. His findings in Para 6.3 of the appellate order are reproduced as under: "6.3 I have carefully considered the facts of the case and the submissions of the A. R. of the appellant and the remand report of the A. O. and counter filed by the A. R. From the details now furnished, it is seen that the appellant has suffered loss on account of sale of granules, which were inferior quality and the same had to be ....
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.... challenged the deletion of addition made on account of difference of balance of Rs.14,03,85,459/-. The AO issued letters to the parties, in response to which three parties furnished reply along with copy of Shri Rama Multitech Ltd., for assessment year 2002-03 and on verification of the details it was noticed by the AO that there were many differences between the account of the assessee and the accounts of suppliers and the assessee could not reconcile the said difference, so the AO held that the purchases from these parties are bogus and non-genuine and calculated the difference as per the details given in the assessment order and made disallowance of Rs.14,03,85,459/-. It was submitted before the learned CIT(A) that the AO made addition of this amount on account of the so-called difference without providing any opportunity to the assessee so as to give any explanation or furnish reconciliation statement. The learned Counsel for the assessee submitted that in fact there were no such differences and furnished a complete reconciliation statement with ledger accounts and vouchers during the appellate proceedings as complied in Annexure C at pages 1231 to 1458 to the submission and s....
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....oney at the time of discounting bills and the appellant has accounted in this year on making on making payment to the bank. Considering the above facts, I find that there is no justification for making any addition on the difference between the figures shown in contra accounts of there parties. The A. O. is, therefore, directed to delete the addition of Rs.14,03,85,459/-." 59. The learned DR relied upon the order of the AO. On the other hand, the learned Counsel for the assessee reiterated the submissions made before the authorities below and submitted that documentary evidences are filed in the paper book PB -1231 to 1458 which were also filed before the learned CIT(A) and the learned CIT(A) on proper appreciation of the facts and circumstances rightly deleted the addition. 60. We have considered the rival submissions and perused the material on record. The assessee furnished reconciliation statement supported by evidences and material on record on which remand report was called for from the AO. No difference was found in the details and reconciliation statement filed by the assessee. The learned DR failed to point out any discrepancy in the findings of the learned CIT(A) or....
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....lt, the departmental appeal in ITA No.1890/Ahd/2009 is dismissed. ITA No.1511/Ahd/2009 ITA No.1892/Ahd/2009 66. Both the cross appeals are directed against the order of learned CIT(A)-XIV, Ahmedabad dated 26-03-2009 for assessment year 2004-05. 67. On ground No.1, assessee challenged the order of the learned CIT(A) in restricting the disallowance to the extent of 25% on disallowance of Rs.2,99,56,428/- in respect of non-genuine purchases. The revenue on ground No.2, challenged the order of the learned CIT(A) in deleting the part addition on this issue. 68. The AO following the order for assessment year 2003-04 made the disallowance holding the same to be non-genuine purchases. The learned CIT(A) following his order for assessment year 2003-04 sustained the addition to 25% of the purchases. Both the parties stated that issue is same as is considered in assessment year 2003- 04. By following the order of the Tribunal for assessment year 2003- 04 above, we set aside the orders of the authorities below and delete the entire disallowance. Ground No.1 of the appeal of the assessee is allowed and ground No.2 of the appeal of the revenue is dismissed. 69. On ground....
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....nds are accordingly dismissed. 72. In the result, the appeal of the assessee in ITA No.1511/Ahd/2009 is partly allowed. 73. The revenue on ground No.1 challenged the order of the learned CIT(A) in directing to allow the sale of raw material loss of Rs.10,56,23,027/-. The learned CIT(A) discussed this issue in Para 3 of the appellate order and following the order for assessment year 2003-04 deleted the addition. Both the parties stated that the issue is same as is considered in assessment year 2003-04. Following the order of assessment year 2003-04 in which Tribunal dismissed the departmental appeal on this ground, we dismiss ground No.1 of the appeal of the revenue. In the result, ground No.1 of the appeal of the revenue is dismissed. 74. On ground No.4, revenue challenged the deletion of addition on account of service charges of Rs.38,24,496/-. The learned CIT(A) in Para 6 noted that the AO following the order for assessment year 2002-03 and 2003-04 disallowed this expenditure as non-genuine. The learned CIT(A) found that similar expenses have been allowed on account of maintenance expenses in assessment year 2003-04 and accordingly deleted the addition. Both the parties ....
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....e without giving opportunity to the assessee to rebut the allegation of the AO. No defects have been found in the books of accounts and details maintained in this regard. The assessee relied upon several decisions in support of the claim and further submitted that lump sum disallowance on merely conjecture and surmises, is not justified. The learned CIT(A) found that the AO made the addition without issuing any show cause notice to the assessee. Commission payment is allowed in the last year and no defects have been pointed out in the books of accounts and no adverse information or evidence has been brought for disallowing commission. The learned CIT(A) however, considering the higher payment as compared to earlier year disallowed 20% of the same and allowed this ground of appeal of the assessee partly. 81. Both the parties are in appeal on these grounds. The learned DR relied upon order of the AO. On the other hand, the learned Counsel for the assessee reiterated the submissions made before the authorities below and submitted that on mere comparison of expenses with the last year is no ground to make the part addition. 82. We have considered the rival submissions and materia....
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....upra). We have decided the similar issue in assessment year 2002- 03 above in favour of the assessee by following the decision in the case of T. R. F. Ltd. (supra). Following the same decision, we do not justify even part disallowance in the matter. The order of learned CIT(A) granting deduction for bad debts is confirmed but the learned CIT(A) is not justified in confirming part of the addition on this issue. Entire addition is, therefore, deleted. Grounds No.2 and 3 of the appeal of the assessee are allowed and ground No.4 of the appeal of the revenue is dismissed. 84. On ground No.4, assessee challenged the disallowance of depreciation on tangible assets. The revenue on ground No.1 challenged the deletion of disallowance of depreciation on assets. It is stated that issue is same as is considered in assessment year 2002-03 and the learned CIT(A) followed his order for assessment year 2002-03 and directed the AO to allow depreciation on software purchased i.e. intangible assets and disallowed the claim of depreciation on tangible assets. It is stated by both the parties that order of the Tribunal in assessment year 2002-03 above may be followed. In assessment year 2002-03, we h....