TaxTMI 
TaxTMI 
2017 (7) TMI 657
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....nce of Rs. 2,50,000/- out of foreign travelling expenses. 3. The Ld. CIT(A) has erred on facts and in law in confirming the disallowance of Rs. 75,000/- out of motor car running expenses. He has further erred in confirming the disallowance even when the AO in the remand report has accepted that the expenses are supported by bills and vouchers including the hand- made vouchers. 4. The Ld. CIT(A) has erred on facts and in law in confirming the addition of Rs. 78,00,000/- u/s 68 by treating the share application money pending allotment as unexplained. 5. The Ld. CIT(A) has erred on facts and in law in confirming the ad hoc disallowance of Rs. 3,00,000/- out of repair and maintenance expenses. He has further erred in confirming the addition even when the AO in remand proceedings has verified the bills/ vouchers and has not found any defect. 6. The Ld. CIT(A) has erred on facts and in law in confirming the disallowance of Rs. 70,000/- out of advertisement and publicity expenses. 7. The Ld. CIT(A) has erred on facts and in law in confirming the addition of Rs. 4,24,27,000/- on account of alleged receipt of own money as income of the assessee o....
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....the case in restricting the disallowance of Rs. 25,00,000/- to Rs. 3,00,000/- made by the AO on a/c of repair & maintenance expenses. 6. That the Commissioner of Income Tax (Appeals), Alwar has erred in law as well as on the facts and circumstances of the case in restricting the disallowance of Rs. 5,00,000/- to Rs. 70,000/- made by the AO on a/c of advertisement & publicity expenses. 7. That the Commissioner of Income Tax (Appeals), Alwar has erred in law as well as on the facts and circumstances of the case in restricting the disallowance of Rs. 20,00,000/- to Rs. 2,00,000/- made by the AO on a/c of perquisites to employees. 8. That the Commissioner of Income Tax (Appeals), Alwar has erred in law as well as on the facts and circumstances of the case in deleting the disallowance of Rs. 60,00,000/- made by the AO on a/c of interest on deposits with RSEB. 9. That the Commissioner of Income Tax (Appeals), Alwar has erred in law as well as on the facts and circumstances of the case in deleting the disallowance of Rs. 50,00,000/- made by the AO on a/c of valuation of Stores & Spares." 2. The brief facts of the case is that the assessee company is ....
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....last year at Rs. 15085/- per MT. The sale of caustic soda comprises approximately 64% of the total sale. Statement indicating working of the average sale rate of current year as well as last year is at P.B.59. In assessment proceeding, the AO never required the assessee to produce any detail in support of the decline in the sale rate as compared to the last year but summarily observed that in the assessment order that vouchers were not produced for verification. The sample bills for both the years in support of the decline in sale price as compared to the last years are produced. Therefore the decline in the sale rate is fully verifiable. ii. Increase in the cost of raw material used in production:- The main raw material used in the production is Salt. The average purchase price of the salt has increased to Rs. 872/-per MT as against last year average purchase price of Rs. 792/- per MT. Statement indicating working of the average purchase rate of current year as well as last year is at P.B.60-61. iii. Increase in the cost of power:- During the year the cost of the power has been increased in terms of unit rate. The cost of the power has increased from average rate....
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.... P rate, we delete the trading addition of Rs. 93.70 lacs as made by the AO. Hence, ground no. 1 of assessee is allowed and ground no. 1 of revenue is dismissed. 7. The 2nd ground of the revenue's appeal is against deleting the disallowance of Rs. 10,00,000/- made by the Assessing Officer on account of travelling expenses. The assessee debited a sum of Rs. 1,10,88,388/- under the head travelling expenses. In assessment proceeding, the assessee filed the details of the travelling expenses. The AO observed that the expenses under this head includes sum of Rs. 33,55,590/- under the head conveyance expenses and Rs. 33,39,722/- under the head travelling expenses. The assessee has failed to produce vouchers exceeding Rs. 10,000/- for verification. Accordingly, A.O. made disallowance of Rs. 10,00,000/- on estimation basis for want of adequate evidences. During the course of remand proceedings, the A.R. has produced Travelling expenses bills, and vouchers towards the claim made for deletion of travelling expenses and submitted its reply to the AO. The AO in his remand report stated that "Travelling expenses and conveyance expenses as claimed by the assessee has been checked on test basi....
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.... disallowance of Rs. 5,00,000 under this head. 14. Now the assessee as well as the revenue are in appeal before us. The ld AR of the assessee has submitted that the AO in the remand report after going through the details of foreign travel expenses and vouchers of tour reports submitted by assessee held that the visit by CEO is for other projects and in some case visit for business purpose are not justified. The Ld. CIT(A) by holding that there are certain deficiencies which were noticed by the AO in the course of examination of bills and vouchers, reports, etc. at the stage of remand proceedings, confirmed the disallowance to Rs. 2.5 lacs. It is submitted that both the lower authorities has not specified any visit/expenses which is not for business purpose and thus the disallowance so confirmed is unjustified and be deleted. 15. At the outset, the ld CIT DR has vehemently supported the order of the Assessing Officer. 16. We have heard the rival contentions of both the parties and perused the material available on the record. The assessee has submitted details of foreign travel and tour reports to the AO in the original proceedings as well as during the course of remand pro....
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....he expenditure. The AO has not pointed out any discrepancy in these vouchers and thus, the disallowance so confirmed be deleted. 20. At the outset, the ld CIT DR has vehemently supported the order of the Assessing Officer. 21. We have heard the rival contentions of both the parties and perused the material available on the record. No specific discrepancy has been pointed by the AO in the bills/vouchers submitted by the assessee. It is not the position of the Revenue that the expenses claimed are bogus in nature or not incurred for the purposes of the business. The adhoc disallowance cannot therefore be sustained in eye of law. Ground no. 3 of the assessee's appeal is allowed and ground no. 4 of revenue's appeal is dismissed. 22. The 4th ground of the assessee's appeal is against confirming the addition of Rs. 78,00,000/- under section 68 of the Act by treating the share application money pending allotment as unexplained. The AO observed that the assessee has received share application money of Rs. 78,00,000/- during the year and the assessee was asked to file the confirmation of share application money but no such confirmation was filed. Accordingly he treated it as unexpl....
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....68 of the Act has received the attention of the Hon'ble Supreme Court and almost all the High Courts in numerous cases. It has been almost unanimously held that the initial burden under this section is on the assessee and the said burden is discharged by the assessee only when the assessee proves three things to the satisfaction of the AO, viz., identity of the creditor, capacity of the creditor and genuineness of the transaction. 26. We know refer to the judgment of Hon'ble Delhi High Court relied upon by the ld AR in the case of CIT vs. Lovely Exports Pvt. Ltd. 299 ITR 268 (Delhi) and SLP against the said decision which was subsequently dismissed by the Hon'ble Supreme Court. The Hon'ble Delhi High Court held that the Tribunal had categorically held that the assessee "has discharged its onus of proving the identity of the share subscribers". Had any suspicion still remained in the mind of AO, he could have initiated "coercive process" but this course of action had not been adopted. The deletion of the additions was justified. Further, relevant observations of the Hon'ble High Court are as under: "18: In this analysis, a distillation of the precedents yields the follow....
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....ld not be said to be perverse. Thus, it could not be said that any substantial question of law arose from the order of the Tribunal. 29. The Hon'ble Jurisdictional High Court in case of in case of First Point Finance Ltd 286 ITR 477 (Raj) following the earlier decision in case of Shree Barkha Synthetics Ltd (supra) held that "it was not denied that all the shareholder/ share applicants were genuinely existing persons. It was also not denied that each of them was an income tax assessee and copies of the return of their income were also placed before the A.O. There was no presumption that the assessee was the benami owner of the investment made by the existing persons. The Tribunal was justified in deleting the addition. 30. On going through the above referred judgments of Hon'ble Supreme Court and the Hon'ble High Courts, it is explicit that the initial onus under section 68 of the Act can be said to have been discharged only when the assessee proves existence/identity of the subscriber, capacity/creditworthiness of the subscriber and the genuineness of transaction to the satisfaction of the AO. All the three constituents are required to be cumulatively satisfied. If one or mo....
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....AY 1998-99 and the ownership/management of the assessee company has since changed hands long back and it is practically difficult to expect the assessee company to produce the original promoters or ask for their bank statements who have sold their shares long back. 32. We have given a careful consideration to the matter. It is noted that the assessee was carrying on business for past many years and during the year under consideration, share application money has been received towards subscription of the share capital of the assessee company. The share application money has been received from the existing promoter group of companies and not from any third person/entity. The promoter group of companies had invested in the share capital of the assessee company in the past and their credit worthiness is well established and accepted by the Revenue in the past. It is not the case of the Revenue that the shareholders were benamidars or fictitious persons or that any part of the share capital represented the company's own income from undisclosed sources. Further, the share application money has been received through normal banking channels and subsequently shares have been allotted. On....
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....ific finding/ basis confirmed the disallowance to Rs. 3 lacs which is unjustified. At the outset, the ld CIT DR has relied on the order of the Assessing Officer. 34. We have heard the rival contentions of both the parties and perused the material available on the record. Where the AO has verified the vouchers/bills submitted by the assessee on test check basis and has not found any defect therein, we see no justifiable reason to sustain the disallowance. The ground no. 5 of assessee's appeal is allowed and ground no. 5 of revenue's appeal is dismissed. 35. The 6th ground of the assessee's appeal and 6th ground of the revenue's appeal are against restricting the advertisement and publicity expenses to Rs. 70,000/- out of total disallowance of Rs. 5,00,000/- and confirming disallowance of Rs. 70,000/- out of the advertisement and publicity expenses. The assessee has debited a sum of Rs. 45,93,941/- under the head rent, rates, taxes and advertisement and publicity. The AO observed that the vouchers produced by the assessee in assessment proceeding were not found fully verifiable. Accordingly, A.O. made lump sum disallowance of Rs. 5 lacs. During the course of remand procee....
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....s appeal as well as ground no. 6 of revenue's appeal is thus allowed for statistical purposes. 37. The 7th ground of the assessee's appeal is against confirming the addition of Rs. 4,24,27,000/- on account of alleged receipt of on- money as income of the assessee on the basis of custom and Central Excise Order passed against the assessee in earlier years. The A.O. observed that in the search conducted by Central Excise Department on 27-08- 1996 and the consequent order passed by Commissioner of Central Excise dated 8-12-1998 it was found that assessee was collecting amount in cash from Customers of liquid chloride over and above the invoice value. This matter has been discussed in A.Y. 1996-97 & 1997-98 and an addition of Rs. 533.24 lacs and Rs. 180.95 lacs was made respectively. During the course of remand proceedings, the A.R. has submitted its reply which is as under: - 1. A.O. has failed to appreciate that the order of the custom and central excise was not final order and no addition could be made on the basis of such an order in the hands of the assessee. 2. A.O. has failed to appreciate that the statement of Shri. Ashok Kumar, an employee of the assessee ....
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.....7 During the course of appellate proceedings, the AO has made enquiries with the Central Excise and Customs Department and a reply has been obtained, as stated in the remand report that "there was no such case of under valuation booked against M/s Modi Alkalies and Chemicals Limited, SP-460, M.I.A., Alwar regarding financial year 1997-98 and thereafter, so far". However, it is found that addition has been made in the case of the appellant on the basis of statement of an employee recorded by the Customs and Central Excise Department wherein it was stated that the company is receiving sale consideration from the customers over and above the invoice value in cash. This addition has been made in the hands of the appellant in earlier years as well. Therefore, I hold that the reply received by the AO in the course of remand proceedings does not cover this issue. Further, the appellant has also failed to furnish any material on this issue which could controvert the evidence available on record. Accordingly, I confirm the addition of Rs. 4,24,27,000/- made by the AO under this head." 39. Now the assessee is in appeal before us. The ld. AR of the assessee has submitted that the AO in th....
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....in respect of whether CESTAT order has been pronounced or not since the date of passing of order by the Coordinate Bench in August 2016. Once the CESAT order is pronounced, the nature of implications as well as the years involved would be clear and the Revenue as well as the assessee would be in a better position to put foreword their respective contentions. Hence, the findings and directions contained in Coordinate Bench decision for AY 1996-97 shall apply mutatis mutandis to the impunged assessment year as well. Hence, ground no. 7 of assessee is allowed for statistical purposes. 43. The 8th ground of the assessee's appeal is against confirming the disallowance of Rs. 2,71,000/- made by the Assessing Officer on account of difference in the rate of interest. The assessee has deposited a sum of Rs. 98.36 lacs with the bank in FDR against the margin money. On these FDR it is receiving interest @9.30%. As against this, the assessee has paid interest @ 14% to 15% on the fixed deposit obtained from public. The AO therefore, observed that the rate of interest payment is higher as compared to the interest received on margin money and therefore he worked out the excess interest paid at....
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....ound that inspection by the department of company affairs had revealed certain irregularities on the issue of interest payment without specifying the same. Hence, disallowance confirmed by CIT(A) is unjustified and be deleted. At the outset, the ld CIT DR has vehemently supported the orders of the lower authorities. 44. We have heard the rival contentions of both the parties and perused the material available on the record. It is not in dispute that the fixed deposits were placed with banks as margin money to avail the facility of bank guarantee which the appellant requires for the purposes of its business. The purpose of fixed deposit was thus not for the purposes of earning interest income but to secure bank guarantee for the purposes of business. At the same time, nothing has been brought on record to the attention of the Bench by either of the parties to determine what kind of irregularities had been revealed by the department of company affairs in matter of interest payment - the basis for sustaining the disallowance by the ld CIT(A). In the interest of justice and fair play, we therefore remand the matter back to the file of the AO to examine the details of enquiry cond....
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.... is made the same is credited to the respective expenditure. The AO has also not brought any evidence to establish that correct value of the perquisite provided to the employees and recovered from same has not been considered in Form no. 16 issued to them. In view of the above facts, the addition of Rs. 20 lacs made by the AO is uncalled for and be deleted. The AO in his remand report stated that "the assessee has filed TDS return and Form 16 of their employees at Alwar. On our test checks, we have noted perquisite value of car, house accommodation, LTA etc. has been taken into account while calculating the tax of the employees." The Ld. CIT(A) had restricted the disallowance from Rs. 20,00,000/- to Rs. 2,00,000/- by holding that the appellant has filed details in respect of the employees in the course of appellate proceedings and explain that value of these perquisites is duly accounted for in the hands of employees. These details alongwith Form no. 16 of employees was test checked by the AO in the course of remand proceedings. The AO has not given any adverse comments on this issue. At the same time, as the AO has failed to give a finding with regard to the details of perqu....
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....roceedings as apparent from the assessment order itself and in respect of all the employees during the remand proceedings. We therefore do not agree with the findings of the ld CIT(A) in this regard. The Ground no. 9 of assessee's appeal is allowed and ground no. 7 of revenue's appeal is dismissed. 47. The ground No. 10 of the assessee's appeal is against confirming the ad hoc disallowance of Rs. 25,00,000/- made by the Assessing Officer out of interest payment. The AO observed that the department of Companies Affairs made an inspection u/s 209A. From the report it was revealed that company has either charged lower interest rate or gave interest free loans. This matter was also discussed in A.Y. 1996-97 & 1997-98 wherein also disallowance has been made. He further observed that the assessee has charged interest on margin money @ 9.30% whereas the interest is paid @ 16.82% on interest on term loan, 21.62% on interest on fixed deposits and 14.36% on interest to bank. Considering all these facts he made disallowance of Rs. 25 Lacs. During the course of remand proceedings, the assessee submitted following submission before the AO: 1. The AO observed that the department o....
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....sufficient evidence could not be produced before the AO on this issue. Accordingly, AO has made adverse remarks on this issue in the report. The appellant has in the cross reply failed to file any further evidence on this issue and has merely reiterated the submissions filed earlier. In view of these facts, the ld. CIT(A) held that appellant has failed to discharge the duty which lay upon him and confirm the addition of Rs. 25 lacs made by the AO on this ground. During the course of hearing, the ld AR of the assessee has submitted that the AO in the remand report stated that assessee has produced books of accounts but details of ICD were not produced by the assessee. It is submitted that the interest paid on ICD is only Rs. 13,72,144/-.The ICD are used for purpose of business. There is no fresh ICD. It is coming from last year. The disallowance made in AY 1996-97 was deleted by the Hon'ble ITAT in ITA No.387/JP/1 dated 19.08.2016. The lower authorities have not brought out any evidence on record to show that funds has been utilised for the purpose other than business. Hence, the disallowance confirmed be deleted. The CIT DR has supported the order of the lower authorities. ....
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....on for payment of the interest on security deposit by the Electricity companies. Section 47(4) of the Electricity Act 2003 only provided that the Electricity company would pay the interest to the consumers on the security deposit taken by it. Thereafter the JVVNL for the first time made orders for payment of interest on the security deposit w.e.f. 13-08-2004 @ 6% p.a. Copy of the relevant document in this respect are at P.B.254-259A. From these documents, it is evident that during the year under consideration, no interest is payable by the electricity company on the security deposit. Accordingly the addition of Rs. 60,00,000/- made by the AO on notional basis is uncalled for and be deleted. The AO thereafter in his remand report has stated that "The assessee has submitted a letter from JVVNL, M.I.A., Alwar bearing No. 2594 that no interest was paid by JVVNL on security amount deposited in F.Y. 1997-98. The same was allowed to be paid by JVVNL w.e.f. 13.08.2004 per annum." The Ld. CIT(A) thereafter deleted the addition made by the Assessing Officer by holding that these facts have been confirmed by the AO in the course of remand proceedings and accordingly, he held that the....
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....d spares but neither such details were filed nor any vouchers in support of the valuation was filed and therefore he presumed that it is not possible to ascertain the basis of the valuation and genuineness of the same. Accordingly, he made a lump sum addition of Rs. 50 Lacs. During the course of remand proceedings, the A.R. has furnished store ledger and submitted his reply which is as under: - 1. The assessee has shown the valuation of the stores and spares at Rs. 498.77 lacs as on 31-03-1998 as per Schedule G of the printed balance sheet. The AO observed that in assessment proceeding, the assessee was asked to file the details of the valuation of the stores and spares but neither such details were filed nor any vouchers in support of the valuation was filed and therefore he presumed that it is not possible to ascertain the basis of the valuation and genuineness of the same. Accordingly, he made a lump sum addition of Rs. 50 lacs. 2. We may point out that in assessment proceeding the assessee vide letter dated 23-10- 2010 explained that the method of inventory valuation is mentioned at point no.5 of the accounting policy. As per this the assessee is regularly val....