2017 (12) TMI 990
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.... 3. "On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in deleting an addition of Rs. 450567/- made as disallowance of electrical expenses without appreciating that these were for a building not used by the assessee for its business and hence was not allowance u/s 37(1) of Income Tax Act, 1961." 4. "On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in deleting addition of Rs. 897391/- made on account of suppression of stock since two items of dies and moulds shown as opening stock as on 1.4.2003 have neither been sold nor shown in closing stock as on 31.3.2004." 5. "On the facts and in the circumstances of the case and in law the Ld. C1T(A) erred in deleting an addition of Rs. 1,00,97,203/- on account of estimation of gross profit which was declared by the assessee company at a very low rate." 6. "On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in deleting an addition of Rs. 9332/- without appreciation the fact that this payment to ESIC was for infringement of law and hence not allowance u/s 37 of the Income tax Act, 1961." 7. "On the facts and in the circumstances of the c....
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....under: "I have considered the assessee‟s reply. It is beyond comprehensive that various assets would have remained idle, for such a long time, as the machinery with the passage of time are likely to be ineffective/defective/junk, and the explanation that some machinery have been shifted to other units in the next year(s) is not plausible. It is apparent and evident that the assessee is not reporting the correct facts and is hiding the truth of the matter. Section 32 of the Act prescribe that depreciation is admissible if an asset is owned by the assessee and used for the purposes of the business. It is an admitted position that unit at Gurgaon was not functioning during the year under consideration; it can thus be safely presumed that the assets installed and the factory building were not put to use for business purposes. The assessee has not furnished any reliable evidence as to what asset has been transferred, what was its use, when transferred, the mode of transfer, etc. And to which unit it was transferred and from when it was used in the other unit. The assessee in letter dated 14.12.2006 has stated that machinery at Gurgaon unit was transferred to other unit at Pl....
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....d the basis of the amount credited have not been supplied". The bill nos. have been given as per page no. 16-22 attached. Therefore, his this observation is proven to be nonfactual. Regarding basis, the assessee was never confronted. It is now explained that the basis of the amount calculation of the individual machinery is cost as reduced by the depreciation earlier claimed. The bills were raised for the purposes of transporting from Gurgaon to Faridabad. It is argued here that as per the block systems of assets as introduced in 1989, the entire small or big machines lying in one unit or any other unit, they continue to be part of the block assets and when it is being transferred from one unit to another the cost at which is being transferred does not remain relevant for the purposes of allowing depreciation of Gurgaon unit. The procedure laid down in the Act is that in the opening balance in block of assets new purchases are added and sales if any are reduced. The balance left is then considered for the purpose of calculating depreciation for the year. Under the law claim of the depreciation on the entire block of assets has been rightly made by the assessee and should h....
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....e entire block of assets has been rightly made by the assessee and should have been allowed. The AO‟s contention that Gurgoan assets were not used therefore, depreciation should not be allowed is not in accordance with the provisions of the Act. I am in agreement with the contentions of the AR. Relief: Rs. 19,92,000/- Accordingly, Ground Nos. 1.1 and 1.2 are allowed." 9. The ld DR could not point out any infirmity in the order of the ld CIT(A). We also do not find and justification to nopt to agree with the order of the ld CIT (A). In view of this we confirm the finding of the ld CIT(A) and dismiss the ground No. 1 of the appeal of the Revenue. 10. Ground No. 2 of the appeal was with respect to disallowance of deprecation on electric fittings of Rs. 277343/- considering the rate of 15% instead of 25% claimed by the assessee. 11. The ld DR relied up on the order of the ld AO and ld AR relied up on the order of ld CIT (A). 12. The ld CIT(A) decided this issue vide para No. 7 to 9 as under:- "7. Ground No. 2.1 is directed against the action of the AO in disallowing depreciation amounting to Rs.2,77,343 on electrical installation. The reasons given by the AO are as under....
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....ry and therefore, in entitled to 25% depreciation". In para 6.2 the Ld AO has confined himself to the Rules which gives 15% rate for the Electric Installations. Here he has grossly committed an error in not understanding that rules are made for implementing the Act. Their lordship in the case of CIT vs. Tajmahal Hotel (1971), 82 ITR 44 (SC), have very categorically laid down as under "The Indian Income-tax Rules, 1922, are meant only for the purpose of carrying out the provisions of the Act and they cannot take away what is conferred by the Act or whittle down its effect". In this case, the Hon‟ble court held that Sanitary and pipeline fittings which though fell under the category of furniture and fittings yet they were treated and accepted as plant and machinery for the purposes of allowing development rebate. The law laid down by the Hon‟ble Supreme Court in the aforementioned case has been again reiterated in another case by the Apex court in Scientific Engineering House Pvt. Ltd. Vs. CIT (1986) 157 ITR 86. In this case the lordship observed:- "That "plant" was not necessarily confined to an apparatus which was used for mechanical operations or was empl....
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....ards, starters and panel boards etc. These all are connected with the machinery and thus form integral part of the Plant and machinery. After careful consideration of the facts of the case, these fittings cannot be equated with normal electrical fittings. The items in question are related to plant and machinery and as such eligible for higher rate of depreciation i.e. 25%. The action of the AO is not upheld. Relief Rs. 2,77,343/-" 13. We have carefully considered the rival contentions and also perused the order of the ld CIT(A) which do not suffer from any infirmities. The ld DR could not show us any error in the order of the ld CIT(A). in the result we confirm the order of the ld CIT(A) ground No. 2 of the appeal of the Revenue. 14. Ground No. 3 was with respect to the addition of Rs. 450567/-. 15. The ld DR relied up on the order of the ld AO and ld AR relied up on the order of ld CIT (A). 16. The ld CIT(A) has dealt with this issue vide para No. 10 to 12 as under:- "10. Ground No. 3 is directed against the action of the AO in disallowing expenses of Rs. 4,50,567.40. The reasons given by the AO are as under: "The above mentioned data would show that electricity bills we....
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....of Directors and assume the role to decide how much is a reasonable expenditure having regards to the circumstances of the case". Further the Hon‟ble Delhi High Court has also decided in favour of assessee in the case of CIT vs. Dalmia Cement (B) Ltd. 254 ITR 377 as under "The reasonableness of the expenditure could be gone into only for the purpose of determining whether, in fact, the amount was spent. Once it is established that there was nexus between the expenditure and the purpose of the business, the Revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize his profits". In the present case it cannot be denied that the expenditure was incurred on electricity and it was to protect and save the business assets of the assessee and it was not in capital nature also, therefore, the disallowance of electricity bills made by the AO should be deleted." 12. I have gone through the assessment order and the detailed written submissions filed by the....
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.... sales in the books, is devoid of merit, as the explanation is not supported with evidence. Accordingly, an addition of Rs.8,97,391/- is being made i.e. to the extent profit is understated. Accordingly, an addition of Rs.8,97,391/- is being made to the income declared." 14. The AR filed detailed written submissions in this regard which are as under: "The assessee manufacturers 'Dies and Tools‟ as per requirements of the customers and on completion the sales invoices are raised. Such kind of the work was shown in progress on 31.03.2003 amounting to Rs. 34,34,718 for 27 items. Kindly refer paper book page no 23. During the previous year i.e. 2003-04 after completing, 25 of 27 items were sold for Rs. 78,76,080. Sl.No. Tool Code Description G.Total Amount 1. OI V02500/2600 CHECKER COMP R FR DR 467257 2. S01V02700/2800 CHECKER COMP R FD RDR 430134 TOTAL 897391 To the specific query of the AO that why these two items were not appearing in the closing stock as on 31.03.2004, a detailed submission supported with evidences was made as under :- "Regarding matching of 'Dies and Tools‟ shown as work in progress as on :- On page-2 of ou....
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....ion of the mail sent by the assessee at mail dated 21.12.06 at 4.35 p.m. on 21.12.2006 which describes the whole set of events and the reasons also why Honda Siel rejected the tools made by the assessee. It has been shown that the tools which the assessee started in F.Y. 2002-03 and on which some expenditure were incurred during F.Y.2003-04 were scraped due to its non-acceptance by the customer. Since this was a customized tools only for Honda Siel therefore, the major cost incurred could not be saved and the components what-so-ever could be salvaged were saved and used in other tools. The AO has not shown that the plea of the Assessee was incorrect or false and no evidence has been led. After careful consideration of the facts and circumstances of the case, I am in agreement with the contentions of the AR." 21. The ld CIT(A) has deleted the addition holding that the stocks not shown in the closing stock were in fact sold during the year and same were also supported by copy of the invoice as well as the correspondence. In view of this we do not find any infirmity in the order of the ld CIT(A) in deleting the above addition. Consequently, ground No. 4 of the appeal of revenue....
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....rent times, first on 30.07.2006 and second on 18.10.2006. It is found from the order that in both the details quantity of different items as well as the final figure of stock is same. In the details furnished on first occasion the value applied was individually and whereas in the in the latter details, average value was taken. The AR clarified that the difference in representation has arisen since the accountant who had been handling expired and the details furnished later were prepared by junior accountant who has been recruited in the place of old accountant. In paras 18.1,18.2 and 18.3 the AO has made out a case where the value of the finished goods in opening stock should have been taken after reducing the selling rate by 26% and not 20% as shown by the appellant. Since this does not effect the income computation of the year under consideration, in my opinion it is irrelevant to discuss further. The appellant has valued finished goods in the closing stock after reducing 26% from the selling price. This is found to be reasonable when the declared G.P. for the year under consideration is 25.68%. The income of the year has been rightly computed on this issue. For the fall in G.P....
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....cepted the G.P rate of 13.5%. As per page No. 127 the G.P. in different years has been given and it is found that in A.Y 2005-06 and 2006-07, it has fallen further by 2.50% and 1.94% respectively. For these two assessment years trading results have been accepted. The appellant has furnished the details called for. The books of account as prescribed are maintained and also the books of account are audited as seen from the 3 CA and 3 CD reports. Lower G.P. compared to earlier years may be one of the factors to be taken into account while resorting to rejection of trading results but it should not be the sole basis. The AO made some theoretical calculations and proceeded to estimate income. The action of the AO is not in accordance with the legal position as on date on the issue. In view of the above discussion, the AO is hereby directed to accept the G.P. declared by the appellant." 24. The ld DR could point out any infirmity in the order of the ld CIT(A). Apparently ld AO has made the addition based on hypothetical calculations. In view of this we do not find any infirmity in his order. Accordingly, ground No. 5 of the appeal is dismissed. 25. Ground No. 6 of the appeal relates t....
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....n and hence, ld CIT(A) has rightly deleted the above disallowance. In the result ground No. 7 of the appeal is dismissed. 28. Ground No. 8 of the appeal is against addition of Rs. 5 lacs made by the ld Assessing Officer holding that it is extremely high as compared to previous year. The above disallowance was deleted by the ld CIT(A) holding that AO has not pointed out any mistake in the details furnished but has made disallowance on ad hoc basis. We do not find any infirmity in the order of the ld CIT(A) in deleting the above addition. in the result ground No. 8 of the appeal is dismissed. 29. Ground No. 9 of the appeal is with respect to addition of Rs. 11405/- made by the Assessing Officer holding that club subscription did not have any nexus with the business of the assessee. The ld CIT(A) deleted the above disallowance holding that AO has not given any reason for the disallowance. Therefore, we confirm the order of the ld CIT(A) in deleting for which we also could not find any reason in the assessment order. In the result ground No. 9 of the appeal is dismissed. 30. Ground No. 10 of the appeal is general in nature and therefore same is dismissed. 31. Before parting we are ....