TaxTMI 
TaxTMI 
2019 (4) TMI 1473
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....an eight years. When the AO asked for proof, the assessee replied that since these amounts were given to the parties over a long period of time and which were mostly in the form of advance made in the ordinary course of business for supply of materials, which the parties could not implement or failed to fulfill, no sale bill is available with it. Further, it was explained by the assessee, the material was not supplied; and the amount was lying in the name of the respective parties which were subsequently written off as bad during the year under review. The AO did not agree with the contention of the assessee for the following reasons: "3.2 The reply of assessee is considered but it is not found acceptable for following ' reasons:- (i) The basic condition that the amount in question should have passed through Profit & Loss account, should be satisfied before allowing any claim of Debit balance written off. (ii) The assessee has not given copy of any sale bill, copy of communication with parties which can even indirectly prove that amount in question is revenue in nature in nature. This is important because any debit balance for example an advance unrelated with business, ca....
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....tion as a trading loss u/s. 28 of the Act. Even though the assessee relied on several judgments of the Hon'ble Apex Court as well as the Hon'ble High Court the Ld. CIT(A) did not allow the claim of the assessee by observing as under: "5.1.14 Decision: I have carefully perused the reply of the assessee and the contents of the assessment order. One thing is very clear from the assessment order that the assessee never proved before the AO or during the appellate proceedings as to what is the nature of the "advances" given to these parties by submitting any documentary evidence. What are these parties actually supposed to give to the assessee in lieu of these advances has also not been revealed by the assessee. It is clear from the submission of the assessee that these parties had not supplied any material to the assessee as they could not produce any bills issued by those parties. Even the addresses have not been given. What was the need for giving such advances to unknown parties is also not clear. In general commercial world it is quite common to give advances. It can also happen that those parties can supply part of the material as agreed upon and subsequently they are not in a ....
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....ted by the AO to deny the claim by pointing out that copies of bills exist only when there is debt written off but in this case these are trade advances given over past several years which got accumulated over a period of time which has been written-off, so it needs to be allowed. According to the Ld. AR, in the case of trade advances, there is no question of bill being issued. He pointed out that the bill will be only issued on supply of material and if the bill was issued, it would logically flow that the said amount was not a trade advance but would be transferred to purchase account. Hence, the AO was not justified to reject the claim. According to Ld. AR, even the Ld. CIT(A) has not accepted the claim only on the reason that there was failure on the part of assessee to adduce documentary evidence to substantiate the nature of the advance given to the parties. According to Ld. AR, in the audited accounts at Schedule 15 the auditor has wrote off the amount after taking note of these facts and since the assessee has submitted before the Ld. CIT(A) the chart wise details of the advances written off, the assessee's claim ought to have been upheld. However, we are not in agreement w....
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....or which it has submitted copies of bills asked for by the AO. The AO has reproduced the chart in the assessment order, which is as under: 9. The AO has disallowed the claim of the assessee by observing as under: "4.2 The assessee has claimed above purchase of items as revenue expenditure. The cylinder purchased from Dresser Rand is not a normal cylinder it is a specialized one requiring higher engineering and technical skill. In itself it is an asset so it cannot be treated as revenue expenditure. PVC cable in small quantity can be treated as part of repair and maintenance but in present instant the assessee has purchased more than 3,500 meter. Such a large quantity of purchase of PVC cable does not justify inclusion of corresponding cost in revenue expenditure. Similarly, purchase of 900 pieces of sprinkler pipe (total length is 5.4 kilometer) also show that these pipes were used for construction of network of pipes for sprinkling. Such large scale purchase of pipe cannot be termed as part of regular repair and maintenance. Further, Oxygen Trace Analyser, Heat Exchanger and Oxygen in Hydrogen Analyser specific instruments which are used to know purity of gases. These items a....
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....enduring benefit. Item nos. 2 to 8 the Ld. CIT(A) also notes that the expenditure was necessary since in the absence of replacement of the said parts, the machines would not be operational. Therefore, it is essential that for the smooth functioning of the business operations of the assessee, the replacement of the spare parts was a necessity. Even if by such replacement, some advantage has been derived by the assessee due to improvement in technology, it may at the most reduce the operating cost. Therefore, the action of the Ld. CIT(A) in giving relief to the assessee taking note of item nos. 2 to 8 is confirmed. So, Revenue appeal of this ground is dismissed. Coming to the item no. 1 which the Ld. CIT(A) has not allowed and assessee is in appeal, we note that it pertains to expenditure incurred on replacement of cylinder. According to Ld. CIT(A), this expenditure incurred by assessee on cylinder has given the assessee an enduring benefit by creating a long term asset which cannot be countenanced. We note that the cylinder represents a component part of the Argon Compressor originally purchased by the assessee in December 1993. This cylinder was a replacement of the worn out existi....
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....intervals and requires replacement. The AO failed to appreciate the nature of use of all these items and disallowed the respective expenses as capital which however is not sustainable. Accordingly, the AO be directed to delete the addition of Rs. 32,44,478." Therefore, we allow the ground of appeal of the assessee in respect of item no. 1 of chart above on this ground and dismiss the ground of appeal of the Revenue in respect of item nos. 2 to 8 (chart supra). 13. Coming to the revenue's appeal ground no. 1, which is against the action of the Ld. CIT(A) in deleting the disallowance of interest expenses claimed by the assessee wherein the AO noted that assessee has obtained loan at a higher rate and advanced the loan at a lower rate. 14. Brief facts of the case are that the assessee had taken loan at varying interest rate from 11.75% to 15%. The AO noted that the assessee has also advanced loan to M/s. Universal Cylinder Ltd. @ 9%. Thus, according to AO, the loan at the higher interest rate was given to this party at lower rate and, therefore, AO was of the opinion that the average lending rate should be at 12% and considering the differential rate of 3% was disallowed. Thus, ....
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....- towards employees' contribution to PF on the ground that the same was deposited after the due date. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who was pleased to delete the addition made by the AO. Aggrieved, revenue is before us. 18. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the employees' contribution to PF ought not to have been disallowed u/s. 36(1)(v) of the Act even though the payment was made after the due date prescribed under the PF Act. According to us, so long as the payment was made before the due date of filing of the return of income u/s. 139 of the Act it should be allowed. We note that the Ld. CIT(A) has allowed the ground of appeal of the assessee by noting that assessee has remitted the employee's contribution of PF before the due date of filing of Return of Income u/s. 139 of the Act. Since in the ground of appeal of the revenue, the revenue has not assailed the decision of the Ld. CIT(A) that any payment made by the assessee in the PF account was after the due date of filing of return u/s. 139 of the Act, so the factual finding of Ld CIT(A) is crystallized. Thus by relying on....
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....yment has been or is to be made to any person referred to in clause (b) of this sub-section, and the Assessing Officer is of opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction. " b) The person referred to in clause a) would be the following, namely: i. . .... ii. Where the assessee is a company, firm, association of persons or Hindu Undivided Family- any director of the company, partner of the firm, or member of the association or family, or any relative of such director, partner or member" 22. Thus, according to Ld. AR, for an amount to be disallowed under this section, following conditions have to be fulfilled: a) The payment is in respect of expenditure; b) The payment has been made to a specified person (i.e., relative or close associates of the assessee) in respect of such expenditure; c) The AO is of ....
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....f revenue. 25. Ground no. 5 of the revenue's appeal is against the action of the Ld. CIT(A) in allowing the brought forward depreciation loss claimed by the assessee for AY 1997-98 of Rs. 4,78,987/-. 26. Brief facts of the case are that the AO disallowed the set off for brought forward depreciation loss for AY 1997-98 of Rs. 4,78,987/- on the ground that as per the applicable provisions of Act during AY 1997-98, the brought forward depreciation loss was permitted to be carried forward for 8 years only i. e. till AY 2005-06. Hence, assessee's claim for adjustment of brought forward depreciation loss in the current year i.e. 2006-07 was disallowed by AO. Aggrieved, assessee preferred an appeal before the Ld. CIT(A) who decided this ground in favour of the assessee by observing as under: "I have gone through the submission of the assessee and the assessment order. This issue has been decided by Hon'ble Gujarat High Court in the case of General Motors (supra). Following the decision, other benches of ITAT have also rendered decision in favour of the assessee. In view of this the ground is decided in favour of the assessee." Aggrieved by the aforesaid action of the Ld. CIT(A) t....
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....rred an expenditure of Rs. 7,78,825/- which was booked under the head 'Interest Others'. The AO held that such payments were subjected to TDS and as TDS was not deducted, the payment was disallowed u/s. 40(a)(ia) of the Act. During the assessment proceedings, the assessee explained that such expenditures were incurred due to late payment of electricity bills and, therefore, the payments were not in the nature of interest. However, according to assessee, the payments were wrongly booked under the head 'Interest Others'. The AO did not accept the assessee's contention and disallowed the payment. Aggrieved, assessee preferred an appeal before the Ld. CIT(A), who after going through the detailed submission of the assessee and appreciating the fact that the interest payment was not really interest payment but the late payment charges of the electricity bill held that the assessee was not liable to deduct TDS on this amount. Hence, the disallowance of Rs. 7,48,825/- was deleted by the Ld. CIT(A). Aggrieved, revenue is before us. 30. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the assessee's electricity supply was connected to t....
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....ount the amount received from the payer in computing income as declared in the return and has paid due tax on the returned income. We note that the Tribunal has held that the insertion of second proviso to sec. 40(a)(ia) of the Act is curative and it has retrospective effect w.e.f. 1st April, 2005, being a date from which Sec. 40(a)(ia) of the Act was inserted by the Finance (No. 2) Act, 2004. In view of this, we are of the view that matter needs fresh adjudication in the light of the fact that the AO will carry out necessary verification. In CIT v. Ansal Land Mark Township Pvt. Limited [ITA 160/2015 & 161/2015, dated 26/08/2015], High the Hon'ble Delhi High Court held that the 2nd proviso to section 40(a)(ia) has retrospective effect from 01/04/2005: "14. The Court is of the view that the above reasoning of the Agra Bench of ITAT as regards the rationale behind the insertion of the second proviso to Section 40(a) (ia) of the Act and its conclusion that the said proviso is declaratory and curative and has retrospective effect from 1st April 2005, merits acceptance. 15. In that view of the matter, the Court is unable to find any legal infirmity in the impugned order of the....