TaxTMI 
TaxTMI 
2013 (9) TMI 234
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....39/-. Aggrieved by the order of Assessing Officer (AO), Assessee carried the matter before CIT(A). CIT(A) vide order dated 13.12.2000 granted partial relief to the Assessee. Aggrieved by the aforesaid order of CIT(A), Revenue is now in appeal before us and Assessee has also filed cross objections. The grounds raised by the Revenue reads as under: "1. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance of travelling expenses of Rs. 10,11,025/-. 2. The Ld. CIT( A) has erred in law and on facts in deleting the disallowance of guest house expenses of Rs. 1,14,319/-. 3. The Ld.ClT(A) has further erred in law and on facts in deleting the addition of Rs. 2,13,322/- on account of loss in trading. 4. The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.96,43,855/- on account of excess consumption of Heptene. 5. The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 86,87,381/- on account of excess consumption of catalysts. 6. The Ld. CIT( A) has erred in law and on facts in deleting the disallowance on depreciation of Rs. 6,30,25,....
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....rs he deleted the addition. Before us, Revenue could not controvert the findings of CIT(A) by bringing any tangible material on record. We, therefore, do not feel necessary to interfere with the order of CIT(A). Thus, this ground of Revenue is dismissed. 7. 2nd ground is with respect to disallowance of guest house expenses of Rs. 114319/-:- On perusing the tax audit report, Assessing Officer noticed that expenditure of Rs. 60000/- towards rent and Rs. 54,319/- towards repairs and maintenance of guest house were not considered by Assessee for disallowance of guest house expenses u/s 37(4). He was of the view that the aforesaid expenses were disallowable and accordingly disallowed the aggregate expenditure of Rs 1,14,319/- u/s 37(4). Aggrieved by the order of Assessing Officer, Assessee carried the matter before CIT(A). CIT(A) noted that the issue was directly covered in Assessee's favour by the decision of Gujarat H.C in the case of Kaira Dist Co-op. Milk Producers Union 192 ITR 608 (Guj) and other decisions of Gujarat H.C. He further noted that on identical facts, in earlier years, the addition was deleted by his predecessor. He therefore following earlier year's order deleted t....
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....t considered by the auditors to be to an associate concern. Further no evidence has been brought on record by the Assessing Officer to support his contention that the price charged was below the market price. He thus, supported the order of CIT(A). 13. We have heard the rival submissions and perused the material on record. It is seen that while deleting the addition, CIT(A) after considering the tax audit report has given a finding that the sale was not to a party which would attract the provisions of Section 40A(2)(a). He further noted that there is no material on record to prove that the sale was made at a price which was below the market rate. Before us, Revenue could not controvert the findings of CIT(A) by bringing any tangible material on record. We, therefore, do not feel necessary to interfere with the order of CIT(A). Thus, this ground of Revenue is dismissed. 14. 4th ground is with respect to addition of Rs. 9643855/- on account of excess consumption of Hexene:- Assessing Officer noticed that Assessee has fetched 101% yield for production of 5024 MT of Iso Octonol whereas in the immediately preceding assessment year the yield was 111.81%. The consumption ratio for H....
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.... The appellant's counsel submitted that if the same is taken into consideration, the consumption figures would become substantially comparable. The excess consumption would be less than 1.4 % of the total consumption of material which is normal in these type of industries and should be ignored. ii) The assessing officer has failed to point out any reasons for rejection of the books of accounts before going for estimation of the income. It was pointed out that detailed books of accounts including quantitative details thereof have been maintained by the appellant and, therefore, there is no reason for rejection of the same. : iii) There is increase in the rate of Gross Profit as compared to earlier years including the A.Y. 1993-94 with which the production figures have been compared. The appellant submitted that the rate of Gross Profit was 40.93 % for A. Y. 1993-94 which had gone up to 41.59 % in A.Y. 1995-96 and had further risen to 47.21 % in the year under consideration. This factor was totally ignored by the assessing officer. I have gone through the submissions made in this behalf. I find that the issue is clearly covered by my de....
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....r of Assessing Officer, Assessee carried the matter before CIT(A). CIT(A) deleted the addition by holding as under: "The next 2 grounds of appeal relate to the addition on account of excess consumption of raw-materials and excess consumption of the catalysts. The assessing officer has observed that the appellant's consumption of the raw-material haptene during the year under consideration has increased as compared to that of the immediately preceding year. The assessing officer further observed that had the consumption ratio of Haptene remained constant, the production of Iso- Octonol should have been more. The assessing officer, therefore, came to the conclusion that to that extent there is excess consumption, which led him to presume that the appellant has sold the said goods outside books of accounts and accordingly made the addition of Rs.96,43,855/-. On similar observations, the assessing officer also made the addition of Rs.86,87,381/- on account of excess consumption of Nickel Based and Copper Based Catalysts. However, for working out the excess consumption of the catalysts, the assessing officer has taken the basis of the consumption figures for A.Y. 1993-94....
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....d the order of CIT(A). 21. We have heard the rival submissions and perused the material on record. It is seen that while deleting the addition, CIT(A) has held that the facts in the present ground are identical to that AY 1995-96 and he relying on his orders for AY 1994-95 and 1995-96 deleted the addition. Before us, Revenue could not controvert the findings of CIT(A) by bringing any tangible material on record. We, therefore, do not feel necessary to interfere with the order of CIT(A). Thus, this ground of Revenue is dismissed. 22. 6th and 7th grounds are interconnected and considered together: 6th ground is with respect to disallowance of depreciation of Rs. 63025680/- on assets leased back to Rajasthan State Electricity Board:- During the course of assessment proceedings, Assessing Officer noticed that Assessee had purchased Ash handling & evaluation system and circuit breakers from Rajasthan State Electricity Board and given back on lease on the same day to Rajasthan State Electricity Board. He further noted that the transaction was only on paper without any physical transfer of equipments. He also noticed that Assessee had received security deposit of Rs. 1,55,83,500/- a....
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.... hand to the other hand. iii)That the appellant in that case had paid substantial sum of money as Lease Management Fees. In the appellant's case also substantial amount has been paid towards brokerage charges which is akin to the lease management fees as in the case before the Hon'ble ITAT. iv)That the circular No. 9 0f 23rd March, 1943 also, permitted the grant of the depreciation to the lessor of' the asset. v) With respect to the valuation of the asset, the Hon'ble ITAT observed that when there is a report of an independent valuer also placed on record, the same cannot be ignored and the same will have to be taken into consideration in absence of any other concrete evidence cm record to prove the case otherwise. vi)That there are large number of decisions of various tribunals in favour of the appellant which considered this type of transaction as genuine transaction. The Hon'ble Tribunal also relied on number of decisions of the Supreme Court and various High Courts before coming to the conclusion that the transaction is a genuine transaction and nothing in law can prevent the granting of the depreciation on the ass....
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....f Revenue is allowed for statistical purposes. 26. 8th ground is with respect to deduction u/s 80HHC: Assessing Officer noticed that Assessee has claimed deduction u/s 80HHC on export of goods. He also noticed that Assessee had excluded excise duty and sales tax to arrive at total turnover. He further noticed that Assessee had included other income of lease rent, interest and misc. receipts as income for the purpose of business. Assessing Officer was of the view that excise duty and sales tax should be considered as part of turnover and the income like lease rent, interest and misc. receipts needs to be excluded for working the deduction u/s 80HHC. He accordingly reworked the deduction at Rs. 75,53,247/-. Aggrieved by the order of Assessing Officer, Assessee carried the matter before CIT(A). 27. CIT(A) granted relief to the Assessee by holding as under: "The next ground of appeal relates to the recomputation of the deduction U/s. 80 HHC of tHe Income Tax Act, 1961. The appellant's counsel brought to my notice that the computation of the assessing officer is not correct on account of the following reasons: (a) The total turnover has been increas....
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....d. 292 ITR 641. He further submitted that net interest is to be considered as per the decision in the case of CIT vs Sriram Honda Power Equip & Ors (2007) 289 ITR 475 and the decision of Hon'ble Supreme Court in the case of ACG Capsules (2012) 343 ITR 89 (SC). He thus supported the order of CIT(A). 29. We have heard the rival submissions and perused the material on record. The dispute in the present appeal before us is of calculation of deduction u/s 80HHC with respect to inclusion of excise duty and sales tax as part of turnover and considering the lease rent, interest etc as part of business income. 30. In the case of Laxmi Machine Tools, (supra), the Hon'ble Apex Court has concluded that Excise duty and sales tax are not includible in "total turnover" in the formula contained in Section 80HHC(3). Respectfully following the aforesaid decision of Hon'ble Apex Court we direct that excise duty and sales tax to be excluded from total turnover and the Assessing Officer is directed accordingly. 31. In the case of ASG Associated Capsules (supra) the Hon'ble Apex Court has held that only 90% of the net amount of any receipt of the nature mentioned in clause (1), which is actuall....
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....e parties submitted that the facts of this ground are identical to that of ground no. 6 & 7 of ITA no. 1077 of 2001 for AY 1996-97 except for the change in figures and thus the submissions made by them are equally applicable to the present appeal and further they have no new submissions to make. 39. We have heard the rival submissions and perused the material on record. Since it is an undisputed fact that the facts are identical to the ground no 2 of ITA No. 1077 of 2001, we for the .reasons given while deciding the issue herein above at para no. 25 also set aside the issue to the file of Assessing Officer to decide it denovo. Thus, this ground is allowed for statistical purposes. 40. 3rd ground is with respect to low yield and GP addition of Rs. 1,55,33,637/-: 41. During the course of assessment proceedings on examining the books of accounts, Assessing Officer noted that the Assessee has not maintained day to day consumption, production records. According to AO, there were no records with respect to stage-wise production, consumption, shortage etc. including for the work done for on job work basis. He was thus of the view that in a manufacturing process if the production ....
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.....Y. 1997-98 arc given as under:- A.Y. 1995-96 A.Y. 1996-97 A.Y. 1997-98 Gross Profit 41.59% 47.21% 44.84% Yield 1.056% 0.987% 1.01% The Assessing Officer has not compared the yield with the immediate preceding A.Y. 1996-97 on the reasoning that the appellant's yield has not been accepted by the Assessing Officer in the said year. He has also rejected the argument that though the yield has been less in A.Y. 1997-98 as compared to A.Y. 1995-96 yet the gross profit is more at 44.84% as compared to 41.59% and therefore no adverse view can be taken for less yield. He has also not accepted that if yield is to be compared it should be compared with immediate preceding assessment year 1996-97 and not with assessment year 1996- 97 and on such comparison, the yield during the current year has increased from .98% in the immediate preceding assessment year to 1.01%. In my view, the Assessing Officer is not justified in comparing the yield of current year (A.Y. 97-98) with yield of A.Y. 1995-96, ignoring the fact that yield of current year is more than the yield of immediate preceding year and at the same time disregarding increase of g....
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.... reasons as to why it cannot maintain consumption of production records in respect of job work separately. According to the appellant, it is not possible to keep separate records for job work as it has to maintain separate storage tanks and before processing the material for job work the plant has to be shut down and the reactors of the factory to be emptied. The said explanation was given to the Assessing Officer during the assessment proceedings which was not considered / accepted by the Assessing Officer at the time of deciding the issue. In my view, the appellant has proper reasons due to which the records in respect of job work cannot be maintained separately and therefore, the Assessing Officer was not justified in taking it as a detect in the maintenance of books of account. It is noted that the Assessing Officer has rejected the books of account maintained by the appellant u/s. 145(3) of the Act. Under the said provisions, the books of account may be rejected if Assessing Officer is not satisfied about the correctness or completeness of the account or the method of accounting provided in sub-clause 1 of Section 145 or accounting standards as notified under sub-section 2 of ....
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....g-of job work @ of Rs. 10850 PMT, it is observed that the appellant has charged job work at the average rate of Rs.31.455 PMT, Rs.20,745 PMT and Rs. 19,115 PMT in the assessment years 1995-96,1996-97 and 1997-98 respectively. In the letter dated 14.11.2000, the Assessing Officer has given the basis for his remarks in the assessment order in respect of average job work charges at Rs.30,000/- PMT in A.Ys. 1995-96 & 1996-97. According to him, both the years taken together the job charges ranged from Rs.20,000/- PMT to Rs.39,350/- PMT with other figures being Rs.37,000/- and Rs.35,000/- and in the range of Rs.33,000/- PMT. According to Assessing Officer if the extreme figures are disregarded for the purpose of calculating average rate PMT then the job work charges in A.Y. 1995-96 would come to an average rate of Rs.36,000/- PMT and if the average of only two years is taken i.e, A.Y. 1996-97 & 1995-96, the charges would be approximately Rs,30,0007- PMT which was taken in the assessment order. In my view, in the said working the Assessing Officer has not followed any method or any accounting principle or any logic. He has devised his own method to justify his calculation of average rate ....
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....ngs of Assessing Officer and relied on the order of Assessing Officer. On the other hand, the Ld.A.R. has submitted that the Assessee has maintained records of production, consumption etc. as required under the excise rules. He further submitted that though the yield has been less as compared to AY: 1995-96, the gross profit is more at 44.84% as compared to 41.59% and therefore no adverse view can be taken. The Ld. A.R. further submitted that yield is affected by large number of factors like quality of raw material, processing pattern and change in production process. He thus supported the order of CIT(A). 43. We have heard the rival submissions and perused the material on record. CIT(A) while deleting the addition has given a finding that AO was not justified in comparing the yield of AY 97-98 with the yield of AY 1995- 96 ignoring the fact that the yield of current year was better than that in the immediately preceding year. He has further held that the Assessee has maintained proper records of production and consumption in accordance with the excise regulations. He has further noted that during the search at Assessee's premises in 1999-2000 minor difference in stock was obser....
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....whom the remuneration was to be fixed. Respectfully following the said decision of the Delhi High Court, the Assessing Officer is directed to delete addition of Rs.25,20,000/." 46. Before us the Ld. D.R. relied on the order of Assessing Officer and on the other hand the Ld A.R. reiterated the contentions made before CIT(A). He thus supported the order of CIT(A). 47. We have heard the rival submissions and perused the material on record. CIT(A) while deleting the addition has noted that the remuneration to Mr. Mehul Bhuva was approved by the members of the company in the annual general meeting, and was also approved by the Company law Board. He has further noted that the salary was taxed in his hand at the maximum rate. He further relied on the decision of Delhi High Court in the case of CIT vs. Shriram Piston & Rings Ltd. 181 ITR 230. Nothing has been brought on record by the Revenue to controvert the findings of CIT(A). We therefore find no reason to interfere with his order. Thus, this ground of Revenue is dismissed. 48. 5th ground is with respect to interest on cash balance of Rs. 11,96,100/-: 49. On perusing the books of accounts Assessing Officer noticed that Asses....
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....ard the rival submissions and perused the material on record. CIT(A) while deleting the addition has noted that the Assessing Officer had no material to make a presumption that the cash balance did not exist and was used for non business purposes. Revenue has not brought any tangible material to support its contention. The case law relied upon by Revenue are distinguishable on fact and are therefore not applicable. We thus find no reason to interfere with the order of CIT(A). Thus, this ground is dismissed. 52. 6th ground is with respect to interest on unconfirmed advances. 53. From the details furnished during the course of assessment proceedings Assessing Officer noticed that Assessee had advanced Rs. 140 lacs in earlier years to 2 parties namely P.B. Traders Mumbai and Shrinivas Plates and Structural, Baroda. To enquire the genuineness of transaction summons u/s 131 were issued to the parties. Summons to P.B. Traders could not be served and was returned with the remark that no such party existed. Shrinivas Plates did not reply to the summons. Assessee inter alia submitted that the advance was given for the purpose of construction of storage tanks but the same could not be ....
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....pellate proceedings, Shri Milin Mehta raised the same contentions as were raised by the assessee during the assessment proceedings. After considering facts of the case, I am of the view that the appellant was not able to substantiate that advances were given for the purpose of business. However, from the facts stated by the Assessing Officer and the appellant, it is not clear whether there was any nexus between funds borrowed and advances given. If there is a nexus between the two and the advances were not given for the purpose of business, the interest on borrowed funds needs to be disallowed. However, if there is no nexus between the two, it should be presumed to have been given out of capital, reserve, interest free loans etc. which are claimed to be more than 30 crores by the appellant. The Assessing Officer is directed to find out the facts and decide the issue on the basis of aforesaid observations." 54. Aggrieved by the order of CIT(A), the Revenue is now in appeal before us. 55. Before us, the Ld D.R. submitted that Assessee has stated to have granted advance in earlier years for the purpose of construction of tanks. However, the Assessee did not submit the copies of ....