TaxTMI 
TaxTMI 
2016 (11) TMI 115
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....ppellate order/assessment order on presumptions and assumptions without providing sufficient opportunity to the Appellant in violation of the principles of natural justice. 3. Based on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in making an ad-hoc disallowance of Rs. 1,93,72,170 from the expenditure debited under "cargo handling, labour and transport charges" without there being any relevant material in support thereof and disregarding detailed submissions before the Ld. CIT(A) . 4. Based on the facts and circumstances of the case and in law the Ld. CIT(A) /AO has erred in not allowing depreciation of Rs. 2,53,39,773 claimed on windmill at Rajasthan ignoring the evidence placed on record by the Appellant to prove conclusively that the windmill was commissioned during the year. 5. Based on the facts and circumstances of the case and in law the Ld. CIT(A) /AO has erred in disallowing finance cost amounting to Rs. 11,101 on account of interest paid on term loan. 6. Based on the facts and circumstances of the case and in law the Ld. CIT(A) /AO has erred in disallowing an amount of Rs. 19,552 under Section 14A read with Rule 8D". 3. The brief f....
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....,580/- and the survey team has already taken such bills and have also seized the same. Apart from that, the bills which were to be received against work done and booked up financial year to the date of survey were approximately Rs. 1.5 crores and this fact was duly intimated to the survey team. While calculating the GP ratio on the date of survey, the amount of expenses aggregating to Rs. 3,49,53,580/- were also not been considered and it was for this reason that there was a higher reporting of GP on that date. Thereafter, the assessee gave its detail submission regarding direct expenses for cargo handling, labour and transportation, net profit ratio etc. The relevant extract of the assessee's submissions have been incorporated by the AO at pages 9 and 10 of the assessment order. The AO, after referring and relying upon the statement of the two labour contractors recorded at the time of survey, came to the conclusion that, the assessee was following a trend to inflate the cargo handling expenses by making entries at the end of the year and thereby suppressing GP/NP. Relying on the statistics gathered at the time of survey, the AO computed the Net Profit at Rs. 11,55,90,301 on a tot....
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....by the Assessing Officer on account of suppression of GP/NP cannot be sustained. However, on the basis of the material gathered during the course of the survey proceedings particularly on the basis of the statements of the two labourers, the ld. CIT(A) made an ad-hoc disallowance @ 5% from the expenditure debited under "cargo handling, labour and transport charges" of Rs. 38,74,43,418 to meet the ends of justice which worked out to Rs. 1,93,72,170/-. The relevant observation and finding of the CIT(A) in this regard reads as under:- "I have carefully considered the facts of the case and the submissions of the Ld. AR. I have also gone through the decisions relied on by the AO and the Ld. AR. As seen from the working of the AO that he has estimated the profits of assessment year 2010-11 even though he has worked out the same based on the statistics taken for FY 2011-12 and part of FY 2012-13 (till 27.12.2012). There were no evidences gathered to show any defects in the books of accounts for assessment year 2010-11. Therefore, the disallowance made by the AO for AY 2010-11 is not correct. On the other hand, the learned AR has given full analysis of net profit worked out by taking into....
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....year, which cannot be sustained either on facts or in law. He brought to our notice that in the year of Survey i.e. AY 2013-14 there was no adjustment made by the AO on the same issue. A copy of the assessment order passed u/s 143(3) for the AY 2013-14 was placed on record by him. On this basis and material fact he pleaded that the AO cannot draw adverse inference in the year not pertaining to survey year and make an addition in AY 2010-11. On merits, Mr. Jain invited our attention to the fact that the assessee company was engaged in a number of activities such as; (i) Trading in various commodities; (ii) Stevedoring and clearing/forwarding; (iii) Power generation through windmills and (iv) Other direct income. The AO has considered the GP/NP ratio of all the activities on consolidated basis. It was pointed out by him that the trading result for a part of the year was being compared with the trading result of the whole preceding accounting year and therefore, it is bound to reflect distorted results and position, because certain entries such as depreciation, interest cost on secured and unsecured loan as well as certain provision of expenses is made only at the end of the accountin....
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....e overall facts of the case. 9. In the rejoinder Mr. Jain submitted without admitting that the modus operandi of a subsequent year cannot be imported to the preceding year without any evidence. 10. We have heard the rival submissions, gone through the relevant finding given in the impugned orders as well as material placed before us. The entire genesis of addition on account of net profit rate and ad-hoc disallowance of labour expenses is the information gathered during the course of survey conducted on 27th December, 2012 at the Branch Office situated at Gandhidham, that is, during the financial year 2012-13 (AY 2013-14). The authorised officers at the time of survey analyzed the comparison of gross profit/net profit position of the company for the financial year 2011-12 and financial year 2012-13 (up till the period 27.12.2012) and found that, the net profit for the financial year 2012-12 was @ 17.61% whereas in the earlier financial year it was @ 4.69%. Based on this premise, AO has applied net profit rate @ 17% to make the addition. The assessee's case had been that, the trading result cannot be casted or arrived at in the middle of the year, because most of the entries like,....
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.... year no adverse inference has been drawn, then as a logical corollary without any material or information on record qua this year, no addition on account of estimation of net profit can be made. We also agree with the contention of the Ld. Counsel that the trading result for the part of the year cannot be compared with the trading result of whole of preceding accounting year, because various expenditures like, interest, depreciation and host of other expenditures are debited or provided on the last day of the accounting year. Thus, we reject the estimation of net profit by the AO and uphold the order of the CIT(A) on this point. 11. Now, coming to the ad-hoc disallowance on account of labour expenditure, it has been pointed out before us that, out of Rs. 37.78 crores expenditure on labour charges, only Rs. 4.63 crores pertains to labour charges for stevedoring, cargo handling and misc. activities and the majority of the payments have been made through account payee cheques except for paltry payment made in cash to the extent of approximately Rs. 45 lakhs. In light of this fact, we do not find any reason to sustain any estimation of disallowance on adhoc basis for the entire amoun....
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....ill project did not commence its operations in the year under consideration and therefore, assessee was not entitled to claim depreciation on the windmill in the AY 2010-11. However he held that the assessee can claim depreciation it in the subsequent year. 13. Before the ld. CIT(A), the assessee submitted that, AO has mainly relied upon one single fact that the land was registered on 22nd November, 2010, therefore, assessee was not in possession of the land. This observation of the AO was rebutted on the ground that registration of the sub-lease deed was only on legal formality pursuant to registration of land revenue rules which came into effect as early as in the year 2007. The main lessee, M/s Suzlon Infrastructure Ltd. from whom the land was taken on sub-lease was already given the possession of the land as early as on 31st May, 2007 and the same lease-deed was formally executed on July 8, 2010. This does not mean that there was no possession of the land with the main lessee and consequent with the assessee. In fact, the process of sub-lease deed of the land was already started and was clarified vide letter dated 15th February, 2010. It was also pointed out that, assessee has....
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....e particular site and there is no reason to have even remote suspicion because the agreement to purchase the power is with none other than a semi-Government authority i.e. Rajasthan Renewable Energy Corporation Limited. It was further pointed out by him that the registration of the sublease deed was only a legal formality pursuant to the Rajasthan Land Revenue Rules. The main lessee i.e. M/s. Suzlon Infrastructure limited had already given the possession of land as early as on May 31, 2007 and the said main lease deed was also formally executed only on July 8, 2010. The formal approval and subsequent registration of sub-lease agreement does not mean that there was no possession of the same with the main lessee and consequently with the Assessee. He invited our attention to page 76 of the paper book which is a letter given by Suzlon wherein the procedure for registration of land is mentioned. Mr. Jain further pointed out that a payment of Rs. 23,79,215/- was received from the said government corporation on August 16, 2010 for power generated for months April 2010 to July 2010, which conclusively demolishes the finding that the windmill could not have come into existence before the d....
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....nstalled the wind-mill project but also commenced the production from the month of March, 2010 onwards. This is evident from in the invoices raised right from April 2010 to July 2010 and other host of other material and evidence filed before the authorities below which has been incorporated by us in the foregoing paragraphs. The commission certificate dated 15th July, 2010 was issued on basis of minutes of the meeting held on 31st March, 2010, wherein, it has been mentioned that date of commissioning of the said project viz. Wind-Mill is from 31st March, 2010. Another important fact which has been completely missed by the authorities below is that, revenue generated from the sale of power have been accepted as income of the project and it has been taxed also in this year. Thus, we are unable to accept the finding and conclusion arrived at by the authorities below that no depreciation is allowable to the assessee and accordingly, we set aside the finding of CIT(A) and hold that not only the Wind-Mil was installed and commissioned in this financial year but also had started its operation on 31st March, 2010. Thus, assessee is entitled for claim of depreciation. The claim of depreciat....
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....pplied by the AO while computing the disallowance which is justifiable and further AO had not made any disallowance on account of interest payments and had restricted only to dividend income of the Assessee. Thus, he confirmed the disallowance made by the AO. 22. Before us, the Ld. Counsel submitted that the authorities below have not recorded any finding in relation to any expenditure attributable for the earning of the exempt income which does not form part of the total income. He submitted that the assessee had received the dividend of Rs. 35,800/- and pointed out that no nexus was established between investment in shares and source of funding of such shares. He also argued that the AO has to record requisite satisfaction as envisaged in Section 14A (2) of the Act before proceeding to consider the applicability of Rule 8D. In support he relied upon the decisions of Raj Shipping Agencies Ltd v. Additional Commissioner of Income Tax (38 Taxman.com 345 (Mumbai)) and the decision of Godrej & Boyce Mfg. Co Ltd v. Deputy Commissioner of Income Tax (328 ITR 81 (Bombay)), stating that recording of requisite satisfaction is sine qua non before making any disallowance under Section 14A. ....
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....w of the finding given therein, the addition made on account of estimation of net profit rate does not stand and accordingly, ground No.2 is dismissed. 26. Ground No.1 relates to the addition made by the AO on account of liasioning fee paid to M/s Sahadev Projects Pvt. Limited to the extent of Rs. 1,05,84,936. The addition made by the AO has been deleted by the CIT(A). The brief facts qua this ground as explained by the Ld. Counsel are that, since inception of the Company, the assessee has been receiving liasoning services from M/s Sahadev Projects Pvt. Limited. These services were received under a written agreement dated 2nd September, 2004. In the course of the survey under section 133A, the authorized officer found bills of the said company i.e. M/s. Sahadev Projects Pvt. Ltd. with regard to the liaison work done by it. The authorized officer recorded the statement of Shri Harshad Gandhi, Director of the Assessee Company and it was explained by him that the Assessee has regularly engaged the said company under a written agreement for providing certain specific professional services and the fees paid to the said company is claimed as liaison charges. It was also explained to the....
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....he Appellant submits that the company M/s. Sahadev Projects Pvt. Ltd. have categorically confirmed that certain specific professional services were rendered and also gave detailed reply to each of the questions put forth by the DDIT in regard to the type of services rendered. 7. M/s. Sahadev Projects Pvt. Ltd. is engaged in the business of providing this kind of services not only to the Appellant but also to various other customers, as can be seen from its Form No.26AS 8. M/s. Sahadev Projects Pvt. Ltd is regularly assessed to tax having PAN AAGCS4189P. The returns of income are filed with the ACIT, Circle-8(3), Mumbai. The return for the year under appeal showing total income of Rs. 7,73,88,298 was filed on March 8,2007. The said party has, in addition to TDS, has paid advance tax of Rs. 82,00,000 and selfassessment tax of Rs. 1,45,00,000. The gross professional receipts shown by the said party is to the tune of Rs. 7,79,35,398 besides rent receipts of Rs. 40,09,500. In addition to the above, the said company has provided liaison services to various persons as under: 9. It is not a case of the DDIT (Inv) or the AO observing that there were cash withdrawals from the bank acco....
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.... the assessee company has never visited the office of Sahadev Project. Making such a huge payment to such an entity seems to be very high and excessive. 30. Before us, Mr. Jain, supporting the order of the CIT(A) submitted that M/s Sahadev Projects Pvt. Ltd. have categorically confirmed that certain specific professional services were rendered and also gave detailed reply to each of the questions put forth by the DDIT in regard to the type of services rendered. It was pointed out by him that there is no dispute about the fact that certain specific services were rendered by the said company but, the DDIT (Inv) felt that the payments has been made at higher rates without bringing in any material in support of his belief. It was argued that the remark of the DDIT that "the payment made by the Assessee to M/s. Sahadev Projects Pvt. Ltd. is very high" is based on his personal opinion only and without any basis. It was argued by him that the entire payment has been made through account payee cheques; tax has been deducted for each payment; applicable Service Tax at 10.3% has been paid to the government and the service provider has shown such income in his return which is again subjected....
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.... dated 24th September, 2004 between the Assessee Company and M/s Sahadev Projects Pvt. Ltd. Such a payment had always been allowed, not only in the earlier years but also in the subsequent years. In the statement recorded, the key person of M/s Sahadev Project, Mr. Devikinandan Sehgal, who is a professional Engineer and has a vast experience in the shipping business, has categorically confirmed before the departmental authorities about the specific professional services rendered by him and also given point wise reply clarifying the questions put forth by the Investigation Wing. The rendering of services by him has not been doubted and the revenue's case is that the payment made to Mr. Sahadev Project is quite high and excessive and therefore, 50% of the payment has been disallowed. From the facts and material as discussed above, it is evidently clear that, M/s. Sahadev Project was providing this kind of services not only to the assessee but also to the various other customers in this line. As incorporated in the foregoing paragraphs, not only he has shown all such receipts from rendering of such services in his income-tax returns, but the entire details of regular assessment of M/s....