TaxTMI 
TaxTMI 
2014 (11) TMI 441
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.... course of scrutiny assessment proceedings, AO while perusing the P&L account noticed that assessee had debited an amount of Rs. 27,73,77,243 towards staff cost. (salary paid to staff). AO noted that assessee company is having branches all over AP and company staffs are also involved in collection and repayment of deposits relating to Margadarsi Financiers, a division of CH. Ramoji Rao, HUF as Margadarsi Financiers is having no offices to do this job. AO noted that during the course of 269SS proceeding in case of CH. Ramoji Rao, HUF relating to AY 2005-06 and earlier years when enquiry was made in respect of Margadarsi Financiers, the depositors deposed that they have deposited and taken back money from Margadarsi Chit fund offices only. AO observed that employees of Margadarsi Chit fund also admitted this fact in their statements given at the time of 269SS proceedings. AO, therefore, was of the view that a portion of the salary paid to the staff of assessee company needs to be disallowed as part of the staff are engaged in providing services to Margadarsi Financiers. He, therefore, called upon assessee to make its submissions in this behalf. As noted by AO in the assessment order,....
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....n the work done by the appellant company. It is obvious that the appellant has debited the entire amount in its books so as to reduce its taxable profits. Given these facts and circumstances, I find that the disallowance of 15% is absolutely just and reasonable and I do not find any reason to interfere with the same. This ground of appeal is decided in favour of the revenue." 6. The learned AR Shri K. Gopal appearing for the assessee submitted before us that out of the total staff cost of Rs. 27,73,77,243, an amount of Rs. 7,19,77,501 is exclusively for carrying out the business activity of the assessee alone. Hence, no disallowance can be made from the said amount. So far as the balance amount of Rs. 20,53,99,742 is concerned, it is towards staff salary of sixty branches spread all over AP. He submitted that the total number of employees in all the branches amounted to 2386. All employees are responsible for performing the work allocated to them as per the employment terms and conditions. Therefore, it is incorrect to say that all employees of sixty branches are engaged in collection and repayment of Margadarsi Financiers. He submitted that out of the total employees in any of th....
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....y Margadarsi Financiers for carrying out their work. In this context, he referred to the list of employees furnished at page 269 of the paper book. In support of his contention, the learned AR relied upon a decision of Hon'ble Madras High Court in case of CIT Vs. Raman and Raman Ltd., 71 ITR 345. 7. The learned DR, on the other hand, strongly supporting the order of the learned CIT(A) as well as AO submitted that the very fact that the employees of the assessee have mobilized deposits of Rs. 804,76,80,000 and made repayments of Rs. 455,22,14,087 itself shows the scale in which the staff of the assessee company are engaged in rendering services to Margadarsi Financiers. He submitted that when Margadarsi Financiers is having neither any branches nor employees of its own and the entire mobilization of deposits and as well as repayments were done through the staff of assessee, it is logical that a part of the salary paid to the staff cannot be allowed as it is incurred towards rendering services to a sister concern and not for the purpose of assessee's business. The learned DR submitted that considering the magnitude of business undertaken on behalf of the sister concern 15% disallowa....
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....lone as it is proved beyond doubt that part of the staff are also rendering services to Margadarsi Financiers. In the aforesaid facts and circumstances, a part of the expenditure towards salary paid to staff can be apportioned towards services rendered by the staff to Margadarsi Financiers. Considered in the aforesaid context, the entire expenditure claimed towards staff cost cannot be allowed. 10. Having held so, it is necessary to quantify the amount of salary which could be reasonably attributed towards rendering services to Margadarsi Financiers. As can be seen, AO has made an adhoc disallowance of 15% from the total salary cost incurred by assessee. However, it cannot be said that the entire staff of assessee company is engaged in providing services to Margadarsi Financiers. It is quite possible that a few of the staff along with the branch manager in each branch may be providing services to Margadarsi Financiers. This fact is also corroborated by the statement given by assessee company's branch manager. In this context, we refer to the list of accountants submitted by assessee at page 269 of the paper book, who are providing services to Margadarsi Financiers. A perusal of th....
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.... are during the FY relevant to AY under dispute, assessee purchased a factory building with plant and machinery in auction conducted by Export Import Bank of India for a total consideration of Rs. 6,79,20,930. As per sale certificate issued by Exim Bank of India the land and building were valued at Rs. 6,22,20,930 and the plant and machinery were valued at Rs. 57,00,000. Assessee after purchasing the land and building along with plant and machinery, sold the plant and machinery as scrap to a scrap dealer for a sum of Rs. 10,84,170 and claimed short term capital loss of the balance amount which was set off against the short term capital gains on sale of shares. AO while verifying assessee's claim during the assessment proceeding, observed that assessee purchased the land and building along with plant and machinery which is of scrap value because of the mandatory condition, therefore, the sale value of scrap is to be reduced from total value of land and building and plant & machinery to arrive at the correct value of land and building. AO observed that though the EXIM Bank issued two separate certificates but the value mentioned therein may be based on the book values for which the a....
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....ing has been sold for a price of Rs. 6,22,20,930, plant and machinery was sold for a consideration of Rs. 57,00,000. Therefore, so far as assessee is concerned it has purchased the plant and machinery for an amount of Rs. 57,00,000. When the assessee has sold the said plant and machinery for a consideration of Rs. 10,84,170, there is a short term capital loss to assessee. Therefore, assessee is entitled to set off this capital loss against the short term capital gains from shares, hence, the disallowance of assessee's claim is not justified. This ground of assessee is allowed. 16. In the result, assessee's appeals are partly allowed. ITA No. 1554/Hyd/12 - appeal by department 17. The first issue in the aforesaid appeal of department is in respect of CIT(A) deleting the addition made by AO by invoking section 40(a)(ia) on account of non-deduction of tax at source on dividend paid to chit subscribers. 18. Briefly the facts are during the assessment proceeding, AO noticed that during the year under consideration assessee has paid interest/dividend of Rs. 5,000 and above to each subscriber amounting to Rs. 212,37,04,662. He further noted that assessee company has not deducted tax a....
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....A). 21. Briefly the facts are, in course of assessment proceeding, AO noticed that assessee has invested in shares of various companies and earned dividend which is exempt from tax. AO was therefore of the view that expenditure attributable to such exempt income has to be disallowed in terms of section 14A. By observing that separate figures for expenditure incurred in earning such exempt is not available, AO worked out the disallowance by applying the provisions of Rule 8D(ii) and 8D(iii) for an amount of Rs. 2,99,728 and Rs. 14,97,449 respectively totaling to Rs. 17,97,177. Being aggrieved of such disallowance, assessee preferred appeal before the CIT(A). 22. The CIT(A) deleted the addition made with the following observations: "6.1.2 I have seen carefully the arguments of the appellant and the fact of the case. I find that the AO has made an absolutely adhoc disallowance. The onus was on the AO to point out which are the items of expenses which relate to section 14A. He has neither looked into the accounts nor one into the issue at all. Therefore, I do not find merit in such adhoc disallowances. The same is ordered to be deleted.." 23. We have considered the submissions of t....
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....re same as ground No. 2 of ITA No. 1554/Hyd/10. Following our conclusion therein, we dismiss these grounds raised by department. 26. Ground No. 4 is same as ground No. 3 of ITA No. 1554/Hyd/10. Following our decision therein, this ground is partly allowed. 27. In Ground No. 5, the department has challenged the action of the CIT(A) in deleting the addition of Rs. 2,32,28,557. made by the AO by invoking the provisions of section 40(a)(ia) on account of nondeduction of tax in terms of section 194C of the Act. 28. Briefly the facts relating to this issue are, in course of assessment proceeding, AO noticed that the assessee has incurred certain expenditure relating to printing and stationery, advertisement, compliments, computer maintenance charges, staff recruitment expenses, etc. He, therefore, called upon the assessee to furnish the details about the aforesaid expenditure. After verifying the details furnished by assessee, AO found that the expenditures have been incurred for the following works: S.No. Name of the party Services rendered Amount paid i) Millennium Inspirat ions Greeting Cards 1,66,000 ii) Sai Sri Printers Printed stationery 26,27,449 iii) United Commercial ....
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....thority. 29. The learned CIT(A) after considering the submissions of assessee and after examining the material available on record, deleted the addition by holding as under: "4.3.2 I have considered the arguments of the appellant carefully and the facts of the case and I find force in the arguments of the appellant. A simple look at the items of expenses would reveal that all of them pertain to straight forward purchase. For example, item No. 1 and 2 clearly speak of purchase of greeting cards and purchase of printing stationery. Item No. 9 is the purchase of VIP Diaries. Item No. 15 is the repair and replacement of printer head. Similarly, all other items are straight forward purchases and do not involve any works contract, whatsoever. The purchase of pocket diaries, calendars, desk top calendars, visiting cards, cloth covers, cannot be classified as works contract. Therefore, I agree with the submissions of the appellant and hold that no TDS was to be deducted on these purchases. Accordingly, there was no applicability of section 40(a)(ia) of the Act. The addition on this account is ordered to be deleted." 30. The learned DR submitted before us that the nature of expenditure i....