TaxTMI 
TaxTMI 
2018 (11) TMI 1109
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....eting of Rs. 1949620/- made by AO on account of disallowance of prior period expenditure. 3. The ld CIT(A) has erred on facts and in law in restricting the Rs. 13312/- against the addition of Rs. 466919/- made by AO on account of disallowance of sales promotion expenditure. 4. The ld CIT(A) has erred on facts and in law in deleting the addition of Rs. 2166127/- made by AO on account of investment in excess stock of SKO. 5. The ld CIT(A) has erred on facts and in law in deleting the addition of Rs. 64894/- on account of profit on sale @3%. 6. On the facts of the case, the ld CIT(A) ought to have upheld the order of the AO. 7. It is therefore, prayed that the order of the ld CIT(A) may be set aside and that of the AO be restored." 3. The first issue raised by the Revenue in this appeal is that ld CIT(A) erred in deleting the addition made by the AO for Rs. 1,13,15,861/- on account of usance interest. 4. Briefly stated facts are that the assessee is a private limited company and a subsidiary of a company based in Singapore. The assessee is engaged in the business of import and export of Sulphur, Superior Kerosene Oil, Furnace Oil, Coa....
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....usance interest paid on account of delayed in the payment to the creditors also does not fall in the definition of interest as prescribed u/s 2(28A) of the Act. The assessee also submitted that the amount of interest income received from the sundry debtors was held to be eligible for deduction u/s 80-I of the Act. Thus, the amount received on account of usance interest from the debtors was treated as sale consideration. Therefore, the same logic/ provision can be applied in relation to the usance interest paid for the delayed payment to the creditors. The assessee in support of his contention relied on the order of this Jurisdictional High Court in the case of Nirma Industries Ltd vs. DCIT reported in 283 ITR 402. 5.1 The assessee also submitted that as per the provisions of Article 11 of DTAA between India and Singapore, such interest was held as penalty charges. Therefore, the same needs to be excluded from the definition of interest expense. 5.2 The ld CIT(A) after considering the submission of the assessee deleted the addition made by the AO by observing as under: "3.2 I agree with all the above explanations and contentions of the appellant as analysed in above p....
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.... Corporation decided the issue whether the interest paid for the usance period will be treated as part of purchase price. In fact, the Hon'ble Supreme Court in the case of Vijay Ship Breaking Corporation has given relief to the assessee on account of amendment brought under the statue under the provision of Explanation- 2 Section 10(15)(iv)(c) of the Act. Therefore, no reliance on the judgment of Hon'ble Supreme Court can be placed in the case on hand. The ld. DR relied on the order of ld. AO. 9. The ld.AR in his rejoinder further submitted that the order of Hon'ble Gujarat High Court in the case of Vijay Ship Breaking Corporation has been merged with the order of ld. CIT(A) in view of the principle laid down by the Hon'ble Supreme Court in the case of Kunhayammed and others vs. State of Kerala and others reported in 245 ITR 360. 9.1 The ld.AR in support of his claim relied on the OECD Model Convention 2014 and its commentary on Article 11 of the OECD Model Convention 2014. The ld.AR also compared the DTAA between India- Singapore with India and Philippines, India-Russia, India-Australia & India-Italy. Accordingly, it was claimed that the assessee was not liable to deduct TDS....
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....ource under section 195(1) of the Act. (4) Usance interest is 'interest' within the meaning of the Article concerning taxation of interest in the relevant Double Taxation Avoidance Agreements. The Tribunal was, therefore, wrong in holding that usance interest was not 'interest' as envisaged in the Double Taxation Avoidance Agreements." 10.3 Subsequently, the view taken by the Hon'ble Gujarat High Court was reversed by the Hon'ble Apex Court. However, we note that the verdict of the Hon'ble Supreme Court was delivered on a different reason as evident under: "9. As regards the second question, we may state that in this case, the controversy which arose for determination was whether the assessee was bound to deduct TDS under section 195(1) of the 1961 Act in respect of usance interest paid for purchase of the vessel for shipbreaking? 10. According to the Department, TDS was deductible under section 195(1) whereas, according to the assessee, such interest partook of the character of the purchase price and, therefore, TDS was not deductible. Therefore, the key question which arose for determination was whether the assessee was in default for not deducting T....
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....raised in the appeal filed by the assessee was not adjudicated. Therefore in our considered view the doctrine of merger of the Hon'ble Gujarat High Court in the judgment of Hon'ble Supreme Court has not taken place. In this connection, we find support and guidance from the judgment of Hon'ble Supreme Court in the case of State of Madras vs. Madurai Mills Company Ltd. reported in 1967 ITR 681, wherein, it was held as under: "In our opinion, the application of the doctrine depends on the nature of the appellate or revisional order in each case and the scope of the statutory provisions conferring the appellate or revisional jurisdiction. For example in Amritlal Bhogilal & Co's.(1) case it was observed by this Court that the order of regis- tration made by the Income-tax Officer did not merge in the appellate order of the Appellate Commissioner, because the order of registration was not the subjectmatter of appeal before the appellate authority. It should be noticed that the order of assessment made by the Income-Tax Officer in that case was a composite order viz., an, order granting registration of the firm and making an assessment on the basis of the registration. The ap....
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.... 10.8 We also note that the Hon'ble Gujarat High court in the case of Vijay Ship Breaking Corporation has considered the meaning of definition of the interest given u/s 2(28A) of the Act. 10.9 Similarly, the Hon'ble Gujarat High Court has also considered the DTAA between India and Singapore, OECD Model Convention and its commentary while deciding the issue of usance interest. 10.10 Thus, the other arguments raised by the ld. Counsel as discussed above do not support the case of the assessee. In view of the above, we hold that the principles laid down by the Hon'ble Gujarat High Court in the case of Vijay Ship Breaking Corporation (Supra) still hold the water and is applicable to the facts of the instant case in full strength. Thus we reverse the order of CIT(A) and restore the order of the AO. Hence, the ground of appeal of the Revenue is allowed. 11. The second issue raised by the Revenue is that ld CIT(A) erred in deleting the addition made by the AO for Rs. 19,49,620/- on account of prior period expenditure. 12. The assessee during the assessment proceedings has filed the ledger showing the expenses under the head commission on sale for Rs. 24,88,787/- only. Out o....
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.... 6.2 The Assessing Officer picked up entries form outstanding liabilities account and just made addition without examining whether those expenses have been claimed as deduction or not. Those entries picked up were the entries of 2002-03 but Assessing Officer has considered as entries as 2001-02 and made addition as prior period expenditure. 6.3 The assessee gave all submissions as required and confirmations of the parties also. The Assessing Officer has stated that two separate accounts for each year called for was not submitted in remand report. According to assessee adequate time was not given. In reply to remand report the said account were furnished. I have examined the account copies and relevant journal vouchers. The entries made for A.Y. 2002- 03 are not all relevant, as no addition was made regarding entries of this year. The addition is for this year i.e. 2003-04 is made on account of liability provided vide journal vouchers No. 681 dated 31.08.2002 for Rs. 1,00,000/- voucher No.1278 dated 31.01.03 for Rs. 9,24,810/- and also voucher 1455 dated 25.03.2003 for Rs. 9,24,810/- Thus total addition comes to Rs. 19,49,620/-. The Assessing Officer has not considered the ....
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.... Amount 1. OSL (2001-02) 31st August, 2002 1,00,000/- 2. OSL (2001-02) 31st January, 2003 9,24,810/- 3. OSL (2001-02) 25th March, 2003 9,24,810/- 16.2 However, from the ledger as discussed above, we further note that a reversal entry was also passed for Rs. 10,24,810/- dated 31st March, 2003 where the OSL account (2001-02) was credited. Thus, it is clear from the above that the assessee has not claimed any expense of Rs. 10,24,810/- pertaining to the period of earlier years. Now the issue remains to be adjudicated for the expenses claimed by the assessee for Rs. 9,24,810/- dated 31st January, 2003 in the ledger of commission on sale. It is a fact that this commission was claimed as OSL (2001-02) which creates a suspicion that it pertains to the earlier years. However, the assessee before the lower authorities claimed that it pertains to the year under consideration. Accordingly, the assessee filed the confirmation from the parties which are placed on pages 6 to 67 of the paper book. From the confirmation issued by the parties, it is clear that it pertains to the year under consideration. The AO was empowered under section 133(6)/ 131 of the ....
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....ms 5,240.00 02K0000078 dt. 01.08.2002 Others Gifts 7503.00 1000, 2390, 3340, 774 Commission paid on out behalf by Sumisu (India) Synthetics & Fibers Pvt. Ltd. has been wrongly debited to sales promotion a/c. 3,840.00 Total.... 4,80,231.00 The Learned AO disallowed the same since the appellant had failed to produce the above mentioned bills before the learned AO due to year end pressures during the month of March and lack of sufficient time given for submitting the same. The assessee had hardly got any time for the submission of the evidence as mentioned above before the date of passing of order on 28.03.2006. Appellant company contends that expenses of Rs. 4,80,231 incurred for sate promotion are genuine business expense. All the relevant vouchers and invoices for sale promotion expenses are submitted on page 12-24 of paper-book-II). Hence, it is submitted that expenses of Rs. 4,80,231 be allowed as business expenses." 18.2 The ld CIT(A) called for the remand report on the details filed by the assessee. The AO vide letter dated 3rd October 2006 has pointed out certain defects in the det....
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....nterfere in the finding of ld CIT(A). Thus, the ground of appeal of the Revenue is dismissed. 21. The interconnected issue raised by the Revenue in ground nos. 4 and 5 is that ld CIT(A) erred in deleting the addition made by the AO for Rs. 21,66,127/- on account of excess stock and of Rs. 64,984/- on account of profit @ 3% on such stock shown outside the books of account. 21.1 The assessee in its stock statement filed during the assessment proceedings has shown closing stock of 3665.569 MT as on 31st July 2002 whereas the stock as on 1st August, 2002 was determined for 3800.379 MT. Accordingly, the AO was of the view that there was excess stock of 134.81 MT. Accordingly, the AO worked out the cost of such stock for Rs. 21,66,127/- (16068/MT x 134.81 MT) and added the same as undisclosed investment in the stock. 21.2 The AO further observed that such undisclosed investment in stock must have been sold by the assessee outside the books of account and the profit on the same has not been offered by the assessee to the income tax. Therefore, the AO worked out the GP@3% on such unaccounted closing stock for Rs. 64,984/- only. Thus, the AO treated the profit on such unaccounted s....