TaxTMI 
TaxTMI 
2012 (11) TMI 626
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.... sake of convenience. ITA No.1056/Chd/2010 :: Assessee's Appeal :: Assessment Year 2006-07 : 4. The learned A.R. for the assessee pointed out that ground Nos.1,2,5 and 6 are general in nature and hence the same are dismissed. The only effective grounds of appeal raised by the assessee in this appeal are as under: "3. That the Ld. CIT (A), Chandigarh is not justified in not considering the correct legal position and submissions by the appellant's counsel and resultantly erroneously concurring with the orders passed by the A.O., u/s 143(3) of the Income Tax Act, 1961 and thereby confirming the action of Ld. A.O. in upholding an addition amounting to Rs. 1,23,327/- regarding payment of PF and ESIC by wrongly invoking the provisions of Section 43B of the Income Tax Act, 1961. 4. That the Ld. CIT (A), Chandigarh is not justified in not considering the correct legal position and submissions by the appellant's counsel and resultantly erroneously concurring with the orders passed by the A.O., u/s 143(3) of the Income Tax Act, 1961 and thereby confirming the action of Ld. A.O. in reducing the deduction u/s 80IC of the Income Tax Act, 1961 by partly allowi....
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....loyees' share of contribution to ESI or PF is made before the due date of filing the return of income, no disallowance is warranted on this account. Similar is the case in respect of employers share of contribution to PF and ESI. The assessee in the present case had deposited the said amount of employees share of PF and ESI admittedly before the due date of filing the return of income and in majority of the months even within the grace period allowed under the respective Acts. Only in respect of the month of June, 2005, the said amount was paid on 21.7.2005 one day later than the grace period but before the due date of filing the return of income in the present case. In view thereof, the total amount is allowable as an expenditure in the hands of the assessee. Consequently, we direct the Assessing Officer to delete the addition of Rs. 1,23,327/- and allow ground No.3 raised by the assessee. 11. We also uphold the order of the CIT (Appeals) in allowing the claim of the assessee in respect of employees share to PF and ESI paid within the grace period. Consequently, ground No. 2 raised by the Revenue in this regard is dismissed. 12. The issue in ground No.4 raised by the ass....
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....could be worked out. In response thereto the assessee furnished working which is annexed as Annexure A-3 to the assessment order. The total of the expenses debited to the head office of Rs. 9,29,04,720/- were considered for allocation between Baddi unit and the remaining business of the assessee. It was also pointed out by the assessee that the net sales of Baddi unit were 2.58% of the total sales of the company. The Assessing Officer vide para 8.2 observed as under: "8.2. Replies of the assessee have duly been considered. From the details furnished by the assessee following points emerge: (i) Assessee has not maintained separate accounts for the eligible unit and other units. (ii) All purchases are centralized and related expenses are debited to head office. Then stock is transferred to Baddi unit: at cost for garment manufacturing, without taking into consideration the purchase expenses e.g. purchase commission, freight etc. (iii) The manufactured goods from the Baddi unit are transferred to the head office after including profit margin and sales are then made by head office through its various retail outlets. No expenses relating to sales are ....
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.... debited to head office amounting to Rs. 97,50,89,394/-, as per the Assessing Officer, included direct expenses relating to purchases which were to the tune of Rs. 2.14 crores. As the purchases were being made by the head office, the said expenses, as per the Assessing Officer, were not transferred to Baddi unit during the stock transfer and hence the same were also to be included for allocation purposes. c) The Assessing Officer also included the expenditure tabulated under table-1 on account of Directors salary and other expenses i.e. insurance, legal and professional expenses, financial expenses and depreciation totaling Rs. 4,24,05,263/- for the purposes of allocating the same to Baddi unit. Thus the total amount for allocation, as per the Assessing Officer, worked out as follows: As per Table 1 Rs. 4,24,05,263/- As per para 8.3 (c) Rs. 10,23,54,135/ - Total Rs. 16,61,72,186/ - Less disallowance as per Para 2.1,5.0,6.7 and 7.1 Rs. 10,48,843/ - ( as above) Balance Rs. 1,64,07,4500/ - 16. The Assessing Officer held that 2.58% of Rs. 16,51,23,343/- amounting to Rs. 42,60,180/- related to Baddi unit and profit of B....
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....150/- as is evident from the goods received note issued by the Panchkula office to Baddi unit enclosed at pages 41 and 42 of the Paper Book. The learned A.R. for the assessee further drew our attention to similar transfer of goods i.e. item No.27 at page 38 of the Paper Book and item No.20 at page 42 of the Paper Book. The explanation of the assessee in this regard was that the goods manufactured at Baddi unit were transferred to the head office at Panchkula and from there on their on to various retail outlets and the difference in the pricing in the goods on transfer was about 20%, which was attributable to the expenses incurred at head office and retail outlets on the sale of the said goods. The learned A.R. for the assessee further stated that both the head office and the retail outlets were in profits and the margin in profits retained was reflected in the hands of the head office and retail outlets. The learned A.R. for the assessee thus stated that in case apportionment of expenditure of head office and retail counter was to be made to the profits of the Baddi unit, similar exercise should be carried out in respect of the profits diverted from Baddi unit to head office and th....
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....) In the alternative, in case any apportionment of expenses was to be made then profit which had been transferred to the Head office should also be considered in the hands of Baddi unit for computing the profits of eligible business. 20. The learned A.R. for the assessee placed reliance on the ratio laid down by Mumbai Bench of the Tribunal in the case of Echjay Industries Ltd. Vs. DCIT (2004) 88 TTJ (MUM) 1089. 21. The learned D.R. for the Revenue in reply relied upon the observations of the Assessing Officer and CIT (Appeals) in this regard and pointed out that separate books of account maintained by the assessee for Baddi unit could not be relied upon because of the reasons mentioned in para 8.2 at page 23 of the assessment order and para 39 at page 23 of the appellate order. 22. The learned A.R. for the assessee in rejoinder submitted that though the assessee had furnished the details and also the list of expenses but had never admitted to the apportionment of expenses of head office to the Baddi unit and the said plea was also taken before the CIT (Appeals) as was apparent from para 36 at page 21 of the appellate order but no finding in this regard had been given by t....
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....nsferred to the respective units. Baddi unit was manufacturing products like shirts and trousers and finished articles were transferred to Panchkula warehouse at a notional inter-unit transfer price. The assessee in the books of Baddi unit treated the said transfer price as it sale price for computing eligible profits of the business. The manufactured items received from all units by Panchkula controlling office were transferred to various retail outlets situated across the country at a price on which the said products were to be finally sold to the end consumer. The retail outlets sold the finished products to the ultimate consumer. The element of profit embedded in sales executed by the head office to its retail outlets and finally to the end consumer was not being transferred to Baddi unit, but was retained by the head office. The assessee had placed on record purchase invoices, transfer memos and sales invoices to prove and establish its modus operandi. At pages 41 and 42 of the Paper Book, the assessee had enclosed goods receipt note issued by the warehouse at Panchkula for the goods received from the Baddi unit. Item No.6 was gents shirt fancy 1644 mix 38 @ Rs. 150/- per piec....
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....ion for working the profits of the eligible unit. (vi) Assessee has admitted that expenses to the extent of Rs. 23,96,941/- (being 2.5% of Rs. 9,29,04,720/-) debited to Head office should have been allocated to Baddi unit and to that extent profits of the Baddi unit had been overstated. This also implies that assessee has admitted that to the extent of Rs. 23,96,941/ the claim of deduction u/s 80IC was excessive." 27. Further in para 8.3 of the assessment order the Assessing Officer had tabulated the expenses of the head office and retail outlets for making the allocation of the expenses of the head office to the Baddi unit. Table-I is as under: Table-1 Particulars Amount used in allocation Director Salary Rs. 24,41,226/- Director Travelling & Conveyance Exp. Rs. 7,64,146/- Insurance Exp. Rs. 9,05,686/- Legal & Prof. Expenses Rs. 55,84,828/- Auditors remuneration Rs. 1,98,360/- Newspaper & periodicals Rs. 6,907/- Membership fee Rs. 2,96,650/- Financial Exp. Rs. 2,22,97,826/-* Depreciation Rs. 99,09,634/- Total Rs. 4,24,05,263/- *expenses debited to H.O. were slightly higher. 28. Tabl....
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....gible profits of business at Baddi unit. In the facts of the present case the assessee is one composite unit consisting of five manufacturing units, one head office, one central warehousing unit and more than 100 retail outlets within India. The assessee is entitled to the benefit of deduction under section 80IC of the Act only in respect of Baddi unit. The assessee for the year under consideration had shown total turnover of Rs. 116.30 crores. The total in come declared by the assessee for the year under consideration was Rs. 3.46 crores. The total turnover of Baddi unit was only Rs. 2.94 crores which was 2.54% of the total turnover of the assessee. The deduction of Rs. 66,49,378/- had been claimed by the assessee against the eligible profits of Baddi unit. The said profits were declared by the assessee by following the consistent method of accounting under which it had recorded its earning i.e. the sale value of the goods sold by it at pre-determined price, which was recorded in its books of account for transfer of goods to the central warehousing unit. The goods therefrom are transferred to the retail outlets on the tag price of the goods i.e. the price to be charged from the en....
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....ng and distribution expenses, printing & stationary, staff welfare, telephone, traveling and rates taxes and fees. The above said expenditure except selling & distribution are the expenses attributable to different units being run by the assessee and no part of the said expenditure could be held to be attributable to the Baddi unit, even to the extent of its turnover to the total turnover. The direct expenses of other units, in no manner can be attributed to Baddi unit. Similarly the selling and distribution expenses are not to be considered in view of the fact that the Baddi unit is computing its income by reflecting sales of its manufactured items at predetermined price and transferring part of its margin of profits to the head office and retail units, which at the end of year had declared profits, which are assessable in the hands of assessee itself. In case these margin of profits are ex cluded from head office and included in the hands of Baddi unit, the resultant figure after debiting even the allocated expenditure on selling and distribution, would be eligible for the benefits of deduction u/s 80IC of the Act. 32. Now coming to Table-1, the expenses considered are the Dir....
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....and circumstance of the case and in law, Ld.CIT (A) has gravely erred in deleting the addition made by the A.O. in disallowing & capitalizing interest amounting to Rs. 6,50,911/- as per provisions of section 36(i)(iii) of the Income Tax Act, 1961. 2. That on the facts and circumstances of the case and in law, Ld. CIT(A) has gravely erred in deleting the addition made by the A.O by treating employees contribution towards EPF amounting to Rs. 1792477/- as income as per provisions of section 2(24) (x) and not allowing deduction of the same as per section 36(l)(iii) of the Income Tax Act, 1961. 3. Whether of the facts and circumstances of the case CIT(A) was right in holding that assessee was not liable to deduct the TDS as there was no written or oral agreement between the alleged parties even in the light of amendment in statute w.e.f. 01-10-2004 in section 194C(3) whereby it is amended to cover instance!) where total payments made to a person during a financial year for work contract exceeds Rs. 50,000/- In such a case it will not matter whether there is single contract or multiple contract. 4. That on the facts and circumstances of the case and in law, Ld....
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....on is allowed on account of amount of interest paid in respect of capital borrowed for the purposes of business or profession. The proviso under the said sub- section further provides that the interest relatable to the capital borrowed for acquisition of assets for expansion of existing business or profusion, for any period beginning from the date of which capitals were borrowed till the date on which the said assets were put to use, shall not be allowed as deduction. 40. As per the proviso to section 36(1)(iii) of the Act, the first step to be seen is whether any capital borrowed for the acquisition of an asset for expansion of the existing business and interest paid on such borrowed funds is to be disallowed for the period up to the date on which the asset is first put to use. In the absence of any borrowed borrowals for the purchase of the land on which interest is being paid, no disallowance is warranted where no part of the borrowed funds are utilized for the purposes of investment in such assets. In the facts of the present case before us the assessee had made investment in land. The claim of the assessee was that the possession of the land was very much with the assessee ....
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....fficer held the assessee liable to deduct tax at source on the payment related to transportation of goods and in the absence of the same the Assessing Officer disallowed a sum of Rs. 5,33,463/- under the provisions of section 40(a)(ia) of the Act. 44. The CIT (Appeals) allowed the claim of the assessee following the ratio laid down by the Hon'ble Punjab & Haryana High Court in Bhagwati Steels in ITA No.693 of 2009- date of decision 21.12010. 45. The learned D.R. for the Revenue placing reliance on the order of the Assessing Officer fairly admitted that the aforesaid amount was fully paid and nothing was payable at the close of the year. 46. The learned A.R. for the assessee placed reliance on the ratio laid down in CIT Vs. Bhagwati Steels [326 ITR 108 (P&H)] and also in CIT Vs. Truck Operators Union, ITA No.865 of the Act 2010 - date of decision 23.3.2011. 47. We have heard the rival contentions and perused the record. The assessee during the year under consideration claimed to have made freight payments directly to the truck owners, which were booked through M/s Canter Transport Operators Union, Panchkula. The said concern was a booking agent which was providing tr....
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....he assessee was utilizing interest bearing funds for running its business. The explanation of the assessee was that the said amounts were being advanced in the course of carrying on the business as the assessee was making both the purchase/sale transactions with the said concerns. The explanation of the assessee was rejected by the Assessing Officer and disallowance of Rs. 3,39,642/- was made. 49. The CIT (Appeals) allowed the claim of the assessee both on account of availability of funds and by way of increase in reserve surplus and also the Assessing Officer having failed to give credit for the amount deducted in the account of Shivam Industries on account of sale/purchase transactions. 50. The learned D.R. for the Revenue placed reliance on the order of the Assessing Officer. 51. The learned A.R. for the assessee vehemently opposed and pointed out that the said concerns were not related persons as per the provisions of section 40A(2)(b) of the Act and the amounts outstanding were in the course of regular business between the assessee and the said concerns and consequently application of provisions of section 36(1)(iii) of the Act was incorrect. The learned A.R. for the ....
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....wable u/s 37 (1) of the Income tax Act, 1961. 2. On the facts and in the circumstances of the case and in law, the learned CIT (Appeals), Chandigarh has erred in applying the Provisions of Section 14 A, of the Income Tax Act, 1961 and confirming the addition of Rs. 2,00,750/- made by Addl. Commissioner of Income Tax, Range - I, Chandigarh as disallowance by applying Rule 8D(2)(iii). 3. On the facts and in the circumstances of the case and in law, the Learned CIT(Appeals), Chandigarh has gravely erred in confirming The addition of Rs. 1,32,02,180 out of total Revenue Expenses of Rs. 2,53,99,069/- claimed in the Return of Income by disallowing Rs. 1,07,49,5237- spent on construction of building on land taken on lease as Capital expenditure instead of Revenue Expenditure claimed in the Return and Rs. 19,99,620/- spent on Electrical Equipment, Office Equipment etc. at various retail outlets by treating it as Capital Expenditure instead of Revenue Expenditure claimed in the Return and Further disallowing Rs. 14,56,0007- spent on modification of Premises (Retail Outlets) taken on lease by treating it as Capital expenditure instead of Revenue Expenditure claimed in Retur....
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....er section 14A of the Act and disallowed sum of Rs. 23,50,478/- as computed under para 3.11 at page 18 of the assessment order. The CIT (Appeals) held that only Rule 8D(2)(iii) was applicable and thus the addition under section 14A of the Act was reduced to Rs. 2,00,750/- and relief of Rs. 21,49,728/- was allowed to the assessee. 58. The assessee is in appeal against the addition of Rs. 2,00,750/-. The Revenue is in appeal against the aforesaid relief allowed by the CIT (Appeals) vide ground No.3 raised in ITA No.687/Chd/2011. 31 59. We proceed to dispose of ground No.2 raised by the assessee and ground No.3 raised by the Revenue. Disallowance under section 14A of the Act is warranted where the assessee has earned exempt income. During the year under consideration i.e. at the close of the assessment year, the assessee had made an investment of Rs. 8 crores with SBI Mutual Fund on 30.3.2007. The said investment was encashed by the assessee on 3.4.2007 and income of Rs. 1,18,507/- was offered to tax in the succeeding year. As against the said investment of four days the disallowance under section 14A of the Act was made by the Assessing Officer of Rs. 23,50,478/- in assessment ....
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....cessive. 63. We have heard the rival contentions and perused the record. The issue raised in cross appeals is in relation to computation of disallowance under section 14A of the Act in respect of the investment made by the assessee in SBI Mutual Funds on 30.3.2007 which was encashed on 3.4. 2007 i.e. after gap of four days . The disallowance has been computed in the hands of the assessee by applying the provisions of Rule 8D(2)(ii) and Rule 8D(2)(iii) of the Income Tax Rules. As held by the Hon'ble Bombay High Court in Godrej & Boyce Mfg. Co. Ltd. Vs. DCIT (supra), the provisions of Rule 8D which were introduced by Notification dated 24.3.2008 were held to be prospective applicable from assessment year 2008- 09 onwards. In view thereof, we find no merit in the orders of the authorities below in applying the provisions of Rule 8D for computing the disallowance under section 14A of the Act in the hands of the assessee relating to assessment year 2007- 08. In any case, the investment made by the assessee was on 30.3.2007 and for a period of two days of holding, we find no merit in disallowing any part of the administrative expenses for the aforesaid investment made by the asses....
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....be non- reimbursable and the same was claimed as revenue expenditure. Further no expenditure was claimed on the said cost of the plot on leasehold. 67. The second aspect of the expenditure was the amounts spent on furniture/fixtures/fittings/interiors/temporary structures at retail outlets. The expenditure incurred by the assessee was claimed to be the minimum requirement of carrying on the business by the assessee company and not creation of new asset. Sum of Rs. 1.05 crores was spent on repairs of retail outlets and was claimed as revenue expenditure under section 30(a)(i) of the Act. The assessee further spent sum of Rs. 19,99,620/- on plant & machinery, electric equipment, electric installation, office equipments. The assessee had further transferred sum of Rs. 20,50,000/- from salary and wages account which was capitalized in the books of account and was claimed as revenue expenditure in the computation of income. The total expenditure claimed was Rs. 2.54 crores. The Assessing Officer rejected the claim of the assessee in respect of all the items. The expenditure on construction of the head office on leasehold land amounting to Rs. 1.07 crores was held to be capital exp....
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.... Rs. 19, 99 ,620/- c) Salary & wages Rs. 20 ,50, 000/- Total Rs. 2, 53 ,99, 069/ - 72. The Assessing Officer disallowed the above said expenditure as under: S. No. Particulars Amount ( in Rs.) 1. Construction of building on lease hold land (After depreciation) Rs. 98 ,96,460/- 2. Construction on expansion/extension of existing business or retail. A) Furniture/fixture/fittings (No bills/vouchers) Rs. 14, 56, 000/- B) Plant & machinery/electrical equipment, electrical installation/office equipment (After depreciation) Rs. 18 ,49, 648/ - C) Salary & wages (Allowed) Total: Rs. 1, 32 ,02, 108/- 73. The assessee is in appeal against the above said disallowance made by the Assessing Officer which was upheld by the CIT (Appeals). 74. The first item of expenditure is the renovation expenditure incurred by the assessee. The assessee had taken on lease plot No.365, Industrial Area, Phase-I, Panchkula from its Managing Director Shri Arun Grover on nominal rent b y p a yi n g h i m R s . 7 5 l a c s and had constructed the building on the said land f....
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....o by us in the paras hereinabove the assessee was running more than 100 retail outlets in whole of India and the break-up of the said expenditure is as under: S.No. Name of Ledger Expense ( In Rs. ) Electrical/Office Equipments : 1 Electrical equipment 843,022.00 2 Electrical Installation 230,028.00 3 Office equipment 76 ,191.00 4 Air Conditioner* Cooler 748,089.00 5 Mobile 102,297.00 TOTAL 1,999,627.00 77. The assessee had furnished the details of the respective expenditure under various sub-heads at pages 53 to 59 of the Paper Book. The first expenditure is on electrical equipment placed at pages 54 and 55 of the Paper Book. The assessee had purchased 80 fans for 60,000 on 12.5.2006. Further there are other bills raised for ceiling fans for different offices as find mention in the ledger account palced at pages 54 and 55 of the Paper Book. The assessee had also spent Rs. 1,54,441/- on 15.1.2007 for electric installation at Faridabad. In the totality of the nature of the expenditure incurred by the assessee we find no merit in the claim of the assessee vis-à-vis e....
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....the A.O. in disallowing & capitalizing interest amounting to Rs. 6,50,911/-as per provisions of section 36(i)(iii) of the Income Tax Act, 1 961 . 2. That on the facts and circumstances of the case and in law, Ld. CIT(A) has gravely erred in deleting the addition made by the A.O. by disallowing proportionate interest amounting to Rs. 3,39,642/- as non business expenses out of financial expenditure claimed in relation to interest bearing loans. 3. That on the facts and circumstances of the case and in law, Ld. CIT(A) has gravely erred in deleting the addition made by the A.O. on the issue of applying the provisions of section 14A of the income tax Act, 1961 on investment of Rs. 8,00,00,000/- in S.B.I. Mutual Fund and disallowing proportionate interest and administrative expenses amounting to Rs. 23,50,478/- by the applying rule 8D. 4. The appellant craves to add or amend any ground any grounds of appeal before the appeal is heard or disposed off. 5. It is prayed that the order of the Ld. CIT(A) be cancelled and that of the assessing officer may be restored. 83. Ground No.3 raised by the Revenue has been decided by us along with ground No. 2 rais....
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....d other related concerns of the assessee as tabulated at page 75 of the assessment order and the Assessing Officer worked out the disallowance at Rs. 1,25,087/-. The CIT (Appeals) allowed the claim of the assessee. 88. We find that the first issue of disallowance of interest relatable to the advances made to M/s Shivam Industries is identical to the issue raised vide ground No.1 in the appeal of the Revenue relating to assessment ye a r 2006-07. Following our reasoning in the paras hereinabove we confirm the order of the CIT (Appeals) in respect of the deletion of addition of Rs. 2,33,038/-. 89. The next item of disallowance of Rs. 1,25,087/- is in respect of imprest account of the Directors of the assessee company and certain advances made to other concerns. The CIT (Appeals) allowed the claim of the assessee in respect of advance made to M/s Shivam Industries being identical to the preceding year. In respect of the interest free advance made to sister concern, the CIT (Appeals) held the assessee to have sufficient funds for making the said advance. We find no merit in the said order of the CIT (Appeals) vis-à-vis interest free advances made to sister concern and to t....
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....at the assessee had borrowed Rs. 500 lacs from M/s India Bulls Housing Finance Ltd. for purchase of land and interest on this land was capitalized in the books of account but was claimed as a deduction by the assessee in its computation of income. The claim of the assessee before the Assessing Officer was that the interest of Rs. 78,97,238/- was paid to M/s India Bulls Housing Finance Ltd. and the same being a business asset was so declared in the schedule of fixed asset. Further claim of the assessee was that the interest paid on the funds borrowed for investment in land for business purposes was an allowable business expenditure notwithstanding the facts that the assessee had capitalized the interest on capital borrowed to the land account, the same was allowable as an expenditure in the hands of the assessee, despite entries in the books of account. The Assessing Officer has given a finding that the loan raised form M/s India Bulls Housing Finance Ltd. was utilized for the purchase of land and consequently the nature of interest payment amounting to Rs. 78,97,238/- was capital in nature as the funds raised were utilized for creation of fixed asset. The CIT (Appeals) upheld the o....
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....y the assessee. Further plea of the learned A.R. for the assessee was that in view of the utilization of the amount in running the business of the assessee firm, there was no merit in disallowing any part of the interest expenditure. 96. We find from the perusal of the orders of both the authorities below that the issue has not been considered by the authorities below in proper perspective and the addition has been made merely because the loan had been raised by the assessee company. The finding of the Assessing Officer in this regard that the amount has been invested in the land account, does not come out from the documents filed by the learned A.R. for the assessee. In the interest of justice and in order to decide the issue we deem it fit to restore this issue back to the file of the Assessing Officer to decide the same de - novo after taking into consideration the various documents filed by the assessee before us and also plea of the assessee in establishing its case of expanding the same amount for the purposes of business activities of the assessee company. Reasonable opportunity of hearing shall be afforded to the assessee by the Assessing Officer. Ground No.2 raised by t....