TaxTMI 
TaxTMI 
2012 (5) TMI 666
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....ncome on 30.10.2002, inter alia claiming the deduction u/s.80HHC. The return was proceeded u/s.143(1)(a). There was no regular assessment under the provisions of the Act. Thereafter, a notice was issued u/s.148 on the ground that the assessee incurred loss and hence was not entitled to deduction u/s.80HHC. The A.O. has recorded the reasons which are reproduced as under :- Name of the case M/s Ratan silk Mills A.Y. 2002-03 Pan AACPR 7220D Reasons for reopening of assessment u/s.148 of the I.T. Act :- Assessee has filed return of income for the aforesaid A.Y. on 30.10.00 declaring income at `.62,595/-. The return was processed u/s. 143(1)(a)/ accepted u/s.143(1) on Assessee is a During the year, assessee has shown net profit of `.17,90,133/- and received amount of `.28,17,955/- towards export incentives. If the export incentives are not taken into account, the assessee has incurred loss i.e. negative profit. Assessee has claimed deduction u/s. 80HHC amounting `.50,75,805/-. As the assessee has incurred loss, he is not entitled for deduction claimed u/s.80HHC as per Supreme Court's decision in case of IPCA Lab Vs Dy CIT reported in 266 ITR 521, Bombay High Court's decision in ....
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.... relief in the return, it shall be deemed to be a case where income chargeable to tax has escaped assessment. Present is a case in which the deduction claimed by the assessee u/s.80HHC has been allowed at a higher level in contravention to these two judgments. In such circumstances, no fault can be found with the A.O. in forming the view that the income chargeable to tax escaped assessment within the meaning of section 147. 7. As regards, the contention of the learned AR that there was no fresh material in the hands of the A.O. for initiating the assessment proceedings, we find that this contention is bereft of any force for the reason that these two judgments were rendered after the processing of return by the A.O. u/s.143(1)(a). The Hon'ble Supreme Court in ITO VS. Saradbhai M. Lakhani & Anr (2000) 243 ITR 1 (SC) has held that a subsequent decision of superior appellate authority constitutes `Information' and reassessment on that basis is valid. It is pertinent to note that the Hon'ble Supreme Court in the case of A.L.A Firm VS. CIT (1991) 189 ITR 285 (SC) has upheld reassessment even on the basis of a decision of a High court available at the time of assessment, but which w....
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....oans to various financial institutions. During the course of the assessment proceedings it was noticed by the A.O. that the account of M/s. Modern Textile Rayon & Silk Mills Pvt. Ltd. (hereinafter called MTRS) had opening balance of `.1.46 crore. The A.O. noted that the assessee made certain purchases from this party and the closing balance was at `.2.00 crore. In the opinion of the A.O., the assessee diverted its interest bearing funds in making the payment to MTRS, a sister concern of the assessee. Accordingly, the A.O. held that the interest on borrowings was not allowable u/s.36(1)(iii) to this extent. This has resulted into an addition of `.23.81 lakhs. 10. The learned CIT(A) accepted the assessee's stand in particular that the assessee was dealing in such types of commodities which were not usually available in the market. MTRS supplied the goods to the assessee on the condition of 100% advance. He observed that "the appellant, therefore, is understandably under obligation to keep the advance amount with MTRS". He however, held that the A.O. should have allowed credit for the sales figure during the year and advance for 4 to 5 months was justifiable. Considering these facts,....
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....t paid in respect of capital borrowed, for the purpose of business or profession, is allowed as deduction. So long as the purpose of utilisation of the capital borrowed is towards business, no disallowance can be made. As admittedly, the advances were made by the assessee to its sister concern for effecting purchases, in our considered opinion, the learned CIT(A) cannot be held to be justified in restricting the addition on account of disallowance of any interest. In the result, this ground of the assessee is allowed and that of the Revenue is dismissed. 13. Ground no.2 of the assessee's appeal is against the sustenance of additions of motor car expenses. The facts apropos this ground are that the assessee claimed deduction in respect of motor car expenses to the tune of `.8,28,597/-. The A.O. observed that the assessee had used 9 motor cars, out of which 5 were in the names of persons other than the assessee firm or its partners. Considering the nature of the business of the assessee firm, the A.O. also found the use of 9 motor cars as quite unreasonable. On being called upon to justify the deduction, the assessee stated that the use of these nine motor cars was for the purpose o....
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....nce of depreciation on that ground cannot be sustained. However, considering the mandate of section 38(2), we sustain disallowance of depreciation @ 10% on account of personal use by the partners in respect of all the motor cars. In so far as the interest part of `.1,57,319/- towards loan on motor car is concerned, in our considered opinion, the same is deductible in view of the fact that the cars were purchased by the assessee firm and were standing in its balance sheet. Further in view of the fact that the said cars were used by the assessee for the business purpose, there can be no question of disallowance of interest for the purchase of such cars. To sum up, we sustain the disallowance on motor cars at the rate of 10% towards personal use by the partners. This ground is partly allowed. 16. Ground no. 4 is against the sustenance of disallowance of `.40,706/- being 50% out of Sales Promotion expenses disallowed by the A.O. The assessee claimed deduction for `.4,07,058/- on account of sales promotion expenses. The A.O. observed that the vouchers for these expenses were not properly backed by bills. He, therefore, made disallowance at 20% of such expenses at `.81,412/-, which was ....
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....omputation of total income made by the A.O. on the last page of the assessment order. There is no reference to any income under the head "Income from other sources". The other reasons for which the order of the learned CIT(A) cannot be upheld is about the amount of depreciation. It was contented before the ld. first appellate authority as well as us that the depreciation in question related only to the idle machinery. On the other hand, it can be seen from the Schedule of assets of the assessee (a copy of which is available at page 1 of the paper book) that the depreciation of `.29.90 lakh is in relation of all the assets including machinery, furniture and fixture etc. There is nothing like any segregation of assets into idle and working assets. When the facts are seen in this light, it becomes apparent that the amount of depreciation for the current year has to be allowed u/s.32 against under the head "Profit and gains of business or profession". The contention of the learned AR that section 57 will govern the deductibility of depreciation is, therefore, rejected. We, therefore, overturn the impugned order on this issue and restore the assessment order to this extent. The ground i....
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....peal about the sustenance of disallowance at 10% of total travelling expenses is not allowed. 6. Ground no. 1 of the Revenue's appeal is about the reduction of the amount of depreciation from the profits of the business for the purpose of computation of deduction u/s.80HHC is allowed. 7. Ground no.2 is about the direction of treating the sample sales as export sales, is dismissed. 8. Ground no.3 about restricting the disallowance of interest on loan at 50% which is dismissed. 25. In the result, both the appeals are partly allowed. Assessment Year 2004-05 26. Both the sides are in agreement that the facts and circumstances of the appeals for this year are also mutatis mutandis similar to those for the immediately preceding year except for few new grounds. In fact, no separate arguments were advanced by the either side in respect of the similar grounds for this year. Following the view taken in the A.Ys. 2002-03 and 2003-04, we hold as under :- 27. Ground no. 1 of the assessee's appeal about the sustenance of disallowance of interest towards trade advance to MTRS is allowed. 28. Ground no.2 about the sustenance of motor car expenses is partly allowed by restricting the add....