AI Drafter 
TaxTMI 
TaxTMI 
2017 (8) TMI 607
X X X X Extracts X X X X
X X X X Extracts X X X X
....wance of Rs. 2,97,115/- u/s 40A(3) of IT Act, 1961. 3. The Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in confirming the disallowance of Rs. 13,414/- u/s 14A read with Rule 8D." ITA No. 505/JP/17 (Ground of Revenue's appeal):- "(i). Whether on the facts and circumstances of the case and in law, the ld. CIT(A) was justified in directing to treat 25% of stock as defective as against the findings of the AO that no stock was found defective on the basis of sale bills denoting similar value." 2. Firstly, regarding ground No. 1 of the assessee, brief facts of the case are that the assessee claimed deduction u/s 80IA of Rs. 13,04,887/- on the income from two wind mill turbines. The assessee filed e-return of income for the year under consideration on 30.09.2013. This return was filed without attaching the audit report in Form 10CCB. any document. As per the assessee, the amendment to Rule 12(2) which provides for furnishing the audit report electronically is applicable from AY 2014-15. The AO however observed that Amendment to Rule 12(2) was made by IT(Seventh Amendment) Rule, 2013 dt. 11.06.2013. It provides that the audit report require....
X X X X Extracts X X X X
X X X X Extracts X X X X
....owed. The ground of appeal is dismissed." 4. During the course of hearing, the ld. AR submitted that from the facts stated above, the moot question which arises in the present case is whether non filing of audit report in Form 10CCB before the due date of filing of return is so fatal as to disallow the claim of deduction u/s 80IA. The ld AR took us through the amendment to the Rules and it was submitted that By IT(Third Amendment) Rule, 2013 dt. 01.05.2013, a proviso was inserted to Rule 12(2) to provide that where an assessee is required to furnish a report of audit u/s 44AB, 92E or 115JB of the Act, the same shall be furnished electronically. The proviso was substituted by IT(Seventh Amendment) Rule, 2013 dt. 11.06.2013 to provide that the audit report required u/s 80IA is also to be furnished electronically. It was submitted that the proviso was made applicable w.r.e.f. 01.04.2013 and is thus applicable for the subject assessment year. It was further submitted that there is no dispute as to the fact that assessee has filed the audit report manually during the course of assessment proceedings and that it is eligible to claim deduction u/s 80IA. The only default on part o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rnished during the course of assessment proceeding, it cannot be removed out of consideration only for the reasons of the same having not been filed at the initial stage of filing the return. Therefore, assessee could not be denied the benefit of deduction u/s 80HHC because the audit report in Form No. 10CCAC had been filed during the course of assessment proceedings. CIT Vs. Rai Bahadur Bissesswarlal Motilal Malwasie Trust 195 ITR 825 (Cal.) The assessee has been denied the benefit of exemption u/s 11 as the audit report in Form No. 10B was not filed along with the return of income and the filing of said report later did not satisfy the condition stated in section 12A. The denial of exemption is supported on the ground that the provisions of section 12A are mandatory. There is no doubt that sec. 12A specifically states that the provisions of sec 11 & 12 shall not apply in relation to income of any trust if conditions stated therein are not fulfilled and in the conditions, it is provided that the accounts of the trust should be audited and the report of the auditor in Form 10B should be furnished along with the return. If sec. 12A is read in isolation and the rule of strict a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f income, the report of such audit in the prescribed form duly signed and verified by such accountant." 7. Admittedly, in support of claim of deduction under section 80IA, the audit report in prescribed Form 10CCB has been filed by the assessee company during the course of assessment proceedings. The Hon'ble Supreme Court in CIT v. G.M. Knitting Industries (P) Ltd. (supra) dismissed the appeal of Revenue and confirmed the view taken by Madras High Court in case of CIT v. AKS Alloys (P.) Ltd. [2012] 18 taxmann.com 25 (Mad.) holding that "Even though necessary certificate in Form 10CCB along with return of income had not been filed but same was filed before final order of the assessment was made, the assessee was entitled to claim deduction under section 80-IB." In light of the above, we agree with the contention of the ld AR that while filing of the audit report is mandatory, the further condition that it should be filed with the return of income is directory in nature and so long as the audit report has been filed during the course of assessment proceedings, substantial compliance has been made. In the result, ground no. 1 of the assessee's appeal is allowed. 8. Regarding gro....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... date. Section 40A(3) is attracted when payment made to a person in a day exceeds the prescribed limit. In the present case, payment made to a person, i.e. to the individual driver do not exceed the prescribed limit and therefore, provisions of section 40A(3) is not violated. The Ld. CIT(A) has observed that assessee has not filed evidence in this regard whereas such evidence were available with the AO in the books of accounts produced and examined by him on test check basis. Copy of ledger account of M/s Arihant Roadlines along with the copy of GR is produced for ready reference. In this connection, reliance is placed on the decision in case of ITO Vs. Dhanshree Ispat (2017) 50 CCH 86 (Pune) (Trib.). 10.1 It was further submitted that the provision contained in section 40A(3) and Rule 6DD are intended to regulate business transactions and to prevent the use of unaccounted money or to reduce the chances to use black money for business transactions. While making addition of Rs. 2,97,115/-, lower authorities have not objected to the genuineness of the payments made to the transporters. Where the person to whom payment is made is genuine and cash is paid in business expediency, the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to truck drivers instead of transport agencies or such cash payments were requested for by such transport agencies to be paid to their truck drivers in any compelling circumstances. 13. Now, coming to another contention of the ld AR that the term " payment to a person" referred to in section 40A(3) should be read in the instant case to "payment to individual truck drivers" and should not be read as "payment to individual transport agency". In this regard, we refer to the provisions of Section 40A(3) which provides that "Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure." The proviso further provides that "Provided further that in the case of payment made for plying, hiring or leasing goods carriages, the provisions of sub-sections (3) and (3A) shall have effect as if for the words "twenty thousand rupees", the words "thirty-five thousand rupees" had been substituted." It talks about incurrence of expenditure and payment made tow....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the assessee that the interest free funds were available with the assessee which were much than the investment made by the assessee and thus, no disallowance on account of interest expenses is called for. However, she confirmed the disallowance of Rs. 13,414/- out of administrative expenses by holding that some expenditure would have gone into earning the dividend income. 16. During the course of hearing, the ld. AR submitted that at the outset, it may be noted that the AO while computing the disallowance in accordance with Rule 8D of Income Tax Rules, 1962, made disallowance out of interest expenses at Rs. 13,414/- and out of administrative expenses at Rs. 1,487/- (refer Pg 10 of the assessment order). The ld. CIT(A) accepted that no disallowance is to be made out of the interest expenses but has wrongly confirmed the disallowance out of administrative expenses at Rs. 13,414/- as against Rs. 1,487/- disallowed by AO. Therefore, even if order of Ld. CIT(A) is upheld, the disallowance be directed to be restricted at Rs. 1,487/- as against Rs. 13,414/- incorrectly mentioned by the Ld. CIT(A). 17. After hearing both the parties, disallowance of administrative expenses is res....
X X X X Extracts X X X X
X X X X Extracts X X X X
....first and the remaining goods gets accumulated. Such accumulated stock has a lower realizable value and therefore, stock of such goods is valued at lower than cost. Normally, considering the past experience, the assessee in respect of certain items like marble blocks/tiles/slab, etc., treat 75% of the stock as fresh and 25% as defective. The fresh stock is valued at average cost of production and defective goods are valued at 50% of the average cost of production. However, in some cases, this ratio is increased or decreased considering the actual position of the defective goods. This method of valuation of closing stock has been consistently followed by the assessee. 20. It may be noted that assessee is valuing closing stock of various items of finished stock at cost or realisable value whichever is lower after giving effect of defective goods on estimate basis. This estimation is made on year to year basis. The estimation of the defective finished goods and its valuation in different assessment year is as under:- Particulars Nature and Value AY 08-09 AY 09-10 AY 10-11 AY 11-12 AY 12-13 AY 13-14 Marbles Slabs Defective % 50 50 50 50 5....
X X X X Extracts X X X X
X X X X Extracts X X X X
....remained the same in present A.Y. as well as in subsequent A.Y., the dispute raised by the Revenue is entirely academic or at best may have a minor tax effect. It was therefore, no need for the Revenue to continue with the litigation when it was quite clear that not only was it fruitless (on merits) but also that it may not have added anything much to the public coffers. It may also be noted that the Punjab & Haryana High Court in case of CIT Vs. Satish Estate Pvt. Ltd. (2014) 226 Taxman 11 where addition of Rs. 75 lakhs was made on account of undervaluation of closing stock of the land but the closing stock of land shown by the assessee is accepted by AO as opening stock for the subsequent made by the AO as on loss to the revenue has been caused. In the present case also, for subsequent AY 2014-15, AO has accepted the closing stock declared by the assessee as opening stock and also accepted the closing stock declared in that year. Therefore, the ground raised by the department is only academic having no tax effect. 22. Similar issue has come up before the Hon'ble ITAT in AY 2005-06, 2008-09, & 2009-10 where the order of ld. CIT(A) was upheld. Therefore, also the ground of the d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stock of one year become the opening stock of next year and if the value of closing stock for the current year is increased, the opening stock value for next year would also increase and reliance was placed on the Apex Court in the case of CIT vs. Excel Industries ltd. 358 ITR 295. It was also submitted that the same issue arose in assessment year 2005-06 and travelled upto ITAT, in assessment year 2008-09 and 2009-10 also issue arose and the CIT(A) following the decision of the ITAT for earlier years deleted the same. In assessment year 2010-11, the Assessing Officer has accepted the valuation of the closing stock as such in the assessment under section 143(3). It is seen that the assessee has been adopting different percentage of stock to be treated as defective without any specific basis. Further, when confronted by the Assessing Officer, the appellant could not prove that any stock was actually sold at a lower price with reference to its books of accounts and bills and vouchers. A comparative chart of estimation of defective stock was called for, for the last 6 years i.e. 2008-09 onwards and it is seen that the appellant has been valuing the percentage of defe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d." Apparently, this finding is in relation to finished stock other than "imported marble slabs". In respect of stock of imported marble slabs, she has followed the decision of her predecessor for AY 2010-11 where percentage of defective stock was restricted to 25% as against 50% done by the AO. 27. The above factual matrix thus present a situation where the ld CIT(A) at first place accept the fact that the assessee has been adopting different percentage of stock to be treated as defective without any specific basis and then, following the position in the appellate proceedings in the earlier years, accept the fact that the assessee does possess defective stock for the year under consideration. 28. In our view, the results of the earlier years might show the relevant trend but are not necessary conclusive for determination of position of actual stock of defective goods for the year under consideration. It is a function of identifying and determining the position of defective stock through an appropriate methodology taking into consideration the physical condition and movement of stock during the year. Secondly, the position in the past years can be relied upon as far as method....