TaxTMI 
TaxTMI 
2018 (11) TMI 544
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....n argument was never raised before the AO and the assessee also failed to give any supporting evidences before the Ld. CIT(A). 2. a) The Ld. CIT(A) has erred in law and on facts to delete the disallowance of Rs. 3,44,78,600/- on account of employee benefits claimed by the assessee not proved to be genuine either during the course of assessment proceedings or before CIT(A) nor proved to have been incurred for the purpose of assessee's business. b) The CIT(A) has erred in law and on facts to decide the appeal on the basis of additional evidence in violation of provisions of Rule 46A of 1.1. Rules. 3. The Ld. CIT(A) has erred in law and on facts to delete the disallowance of Rs. 33,30,790/- on account of consultancy fee expenses not proved to be genuine and incurred for the purpose of assessee's business. 4. On the facts and in the circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. 5. It is, therefore, prayed that the order of the Ld. CIT(A) may be set aside and that of the Assessing Officer may be restored to the above extent." 3. In this case, return of income declaring loss of Rs....
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....t & loss account but not offered to fax in computation of total income on the ground that such write back was capital in nature. The Assessing Officer has observed that though loan received is capita! in nature but when it ceased to exist the same was shown as income in books of account hence appellant cannot take stand that it is not income while filing Return of Income. Thus, amount was correctly considered as cessation of liability and such amount is liable to be taxed as income u/s 28(iv) r.w.s 41 (1) of the Act. On the other hand, appellant has argued that loan was taken in the initial years of the company for setting up the requisite infrastructure i.e. for capital expansion purposes and for setting up of-the company and therefore, the loan write back was capital in nature and hence not taxable. The fact that the waiver of loan amounted to capital in nature was also accepted by the AO. Therefore, waiver of principal amount of loan was not covered by section 28(iv) or section 41(1) of the Act. It has also been submitted that accounting treatment in books of account was as per relevant accounting principles and Accounting Standards whereas treatment of such income in c....
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....e Act show that Section 28(iv) speaks about the benefit or perquisite received in kind such as benefit or perquisite received in kind other than in cash would be an income as defined under section 2(24). Thus, any transaction which involves money, section 28(iv)has got no application. Reliance is placed on the decision of Hon'ble Madras High Court in the case of Iskraemeco Reagent Co. Ltd., 331 ITR 317 and decision of Hon'ble Gujarat High Court in the case of Alchemic Pvt. Limited 130 ITR 168. Hon'ble Madras High Court, referred supra, has held as under: "...Therefore, the transaction in the instant case being a loan transaction having no application with respect to section 28(iv), the same could not be termed as an income within the purview of section 2(24), in other words, inasmuch as section 28(iv) was not applicable to the transaction on hand, if could not be termed as income which could be made taxable as receipt. Hence., such a receipt which did not have any character of an income being that of a loan could not be made exigible to tax. [Para 29] Similarly, section 41(1)(a) also could not have any application inasmuch as the said provision would b....
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....and, therefore, the orders passed by them could not be sustained. [Para 26]" In the present case, as discussed herein above, loan was taken for investing in capital assets and enjoyed the capital nature as observed by Assessing Officer hence decision referred supra are squarely applicable on facts of Appellant's case. There is no fact on record which indicates that the loan has been taken for trading purposes. Further, accounting treatment followed while preparing annual accounts does not decide true character or nature of income and same is required to be decided on the basis of relevant Provisions of the I.T. Act, 1961. No addition to the income can be made merely on the ground that the appellant has treated the same as income in the books of accounts. The actual decision has to be taken after examining the nature of entry and the Provisions of Income tax Act Further, the decision of Hon'ble Bombay High Court in the case of Solid Container Limited V/s DCIT relied upon by Assessing Officer is not applicable to the facts of Appellant's case as in that case loan itself was taken for trading activity hence waiver of such loan was taxed as business income....
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....he amount written off to the P & L a/c for the year under consideration for the purpose of ascertaining the total income including capital receipt and subsequently reduced the amount of waving of loan amount as a capital receipt for the purpose of charging of tax. It is undisputed fact that the loan was taken for the purpose of investing in the capital assets because of change in management a part of the loan was waived off, which was claimed as deduction because of being receipt of capital nature. During the course of assessment before the assessing officer the assessee has placed reliance on the decision of Jurisdictional High Court in the case of CIT vs. Chetan Chemical 267 ITR 077 wherein it is held that if no allowance of deduction has been claimed in any of the preceding years in respect of the liability cases to exist, then, there is no question of applying the provision of section 28 (iv) r.w.s. 41(i) of the Act. The assessing officer has not disproved the applicability of the above judicial pronouncement of Hon'ble Jurisdictional High Court to the facts of the case of the assessee. During the course appellate proceedings before us, the ld. departmental representative has p....
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....npower. It was further stated that the number of employees hired in the year has been increased in compared to the earlier years. For instance, the total number of employees hired by the assessee on 31st March, 2010 was 1504 whereas this no. has been increased to 2108 as on 31st March, 2011. The assessee company's management was transferred to ASCEDUM Group, therefore, due to differences in the system of running the business various expenses were incurred. The assessing officer has not accepted the explanation of the assessee stating that disproportionate expenditure under the head payment and provisions for employees cannot be considered as genuine. Consequently the assessing officer has disallowed the amount of Rs. 3,44,78,600/- considering as not genuine and added to the total income of the assessee. 8. In the appeal, the ld. CIT(A) deleted the said addition made by the assessing officer. Relevant part of the decision of the ld. CIT(A) is reproduced as under:- "4.3 Decision: I have carefully considered the assessment order and submission filed by appellant. The Assessing Officer has observed that appellant has claimed expenditure of "Payment and provision....
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....appellant has explained to Assessing Officer that during the year under consideration, it has received new contract from Idea Cellular Limited (ICL) which require more manpower pool with basic skill sets like able to communicate in basic Gujarati/English/Hindu language and the ability to work on computer. The nature of contract received from ICL requires 24 hours manpower at the call centre hence more recruitments were carried out by Appellant Company. Further, Appellant has also procured new contracts from its existing clients in export business of accounting domain in UK and mortgage loan processing domain in USA and as per requirement of such contracts, it has employed more personnel. The nature of outsourcing activity carried out by Appellant is different in your Accounting Years hence contention appellant that depending on these activities, Appellant has to recruit or employ "more personnel is found to be correct, in the year under consideration Appellant has earned major revere from ICL for Rs. 3.08 crores and from Aditya Corpex Pvt. Limited for Rs. 78.57 lacs whereas in immediately preceding year there was no income from ICL and only small income of Rs. 8.94 lacs fr....
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....nking channel and necessary tax has been deducted by Appellant Company hence Assessing Officer was not justified in estimating reasonable salary expenditure in the case of Appellant just on comparison of expenditure in ratio of income earned in both the years. if is therefore, clear from the above facts that entire disallowance has bee-: made on presumption and on comparison of figures of two years and without bringing any corroborative evidence to justify unreasonableness of the expenditure. It would not be out of place to mention here that the books of accounts of the appellant are audited and the audit report also does not mention any qualifying remark regarding the expenditure on employees, in absence of any defects in the books of accounts no disallowance of expenditure can be made merely on the basis of comparison and estimate. The reliance is placed on the judgement of The Hon'ble Delhi High Court in the case of Dalmia Cement Pvt. Ltd., 121 Taxman 706 where it has been held that: For the allowance under section 37(1), following conditions are to be satisfied, i.e.,(a) there must be expenditure, (b) such expenditure of the nature- described in sections 3....