TaxTMI 
TaxTMI 
2019 (7) TMI 797
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....f Rs. 7,70,79,009/- on account of Inventory . GROUND No.2 Addition of Rs. 4,77,817/-. The CIT(A) erred in law and on facts of the case by confirming an amount of Rs. 4,77,817/- on account of mismatch in the physical and book balance of diesel without appreciating the explanations submitted by the appellant. The appellant respectfully prays that the directions of the CIT (A) to the AO be quashed and AO be directed to delete the addition of Rs. 4,77,817/- on account of Diesel. GROUND- 3 Addition of Rs. 2,40,00,000/- The CIT(A) erred in law and on facts of the case by confirming an amount of Rs. 2,40,00,000/- on account of mismatch in the physical and book balance of Steel as reported by the Special Auditor without appreciating the explanations submitted by the appellant. The appellant respectfully prays that the directions of the CIT (A) to the AO be quashed and AO be directed to delete the addition of Rs. 2,40,00,000/- on account alleged discrepancy in the stock of Steel. Ground 4 - Addition of Rs. 25,00,000/-. The CIT(A) erred in law and on facts of the case by confirming an amount of Rs. 25,00,000/- on account of alleged stock of scrap determined based on ....
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....pacity of TBMs and were meant for maintenance of TBMs. The appellant respectfully prays that the directions of the CIT (A) to the AO be quashed and AO be directed to allow expenses incurred on account of machinery spares as a revenue expense. GROUND -8 Disallowance of amortization expenses of Rs. 4,90,78,282/- The CIT(A) erred in law and on facts of the case by confirming the disallowance of amortization expenses of Rs. 4,90,78,282/- being the difference between amortization expenses claimed by appellant based on the lifetime of the project as per books vis-a-vis depreciation calculated under Income Tax Rules, 1962. The appellant respectfully prays that the directions of the CIT (A) to the AO be quashed and AO be directed to allow deduction of Rs. 4,90,78,282/- on account of amortization expenses. GROUND- 9 Addition on account of Foreign Exchange Gain of Rs. 4,15,68,750/- The CIT(A) erred in law and on facts of the case by confirming an amount of Rs. 4,15,68,750/- on account of foreign exchange gain on restatement of liabilities on account of capital purchase. In doing so, the CIT(A) disregarded the fact that gain on translation/ conversion of foreign currency l....
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....actice followed by the appellant. The appellant respectfully prays that the directions of the CIT (A) to the AO be quashed and AO be directed to delete the disallowance of Rs. 9,99,67,544/-. GROUND -13 Disallowance of expenses of Rs. 50,00,000/- The CIT(A) erred in law and on facts of the case by confirming ad-hoc disallowance to the extent of Rs. 50,00,000/- by treating it as perquisites in the hands of employees and accordingly the appellant failed to deduct TDS thereon. In doing so, the CIT(A) disregarded the details of expenditure submitted by the appellant such as staff meal expenses, food expenses, rent and car hire charges incurred for all employees. The CIT(A) accordingly failed to appreciate that expenses incurred by the appellant were towards staff welfare and not in the nature of perquisites. The appellant respectfully prays that the directions of the CIT (A) to the AO be quashed and AO be directed to delete the disallowance of Rs. 50,00,000/-. GROUND -14 Addition of Rs. 90,29,913/- The CIT(A) erred in law and on facts of the case by confirming addition of Rs. 90,29,913/- on account alleged mismatch in balance confirmation of vendor M/s S.B. Protech d....
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....actice. The appellant respectfully prays that the directions of the CIT (A) to the AO be quashed and AO be directed to delete the disallowance of Rs. 12,01,000/-. GROUND -19 Addition on account determination of ALP in respect of transaction with AE of Rs. 25,90,46,464/- The CIT(A) erred in law and on facts of the case by confirming addition to the extent of Rs. 25,90,46,464/- in respect of transactions with an Associate Enterprise viz. M/s L&T Geostructure LLP by determining the Arm's Length Price ('ALP') of the transaction on an adhoc basis in contravention of the provisions of the Income Tax Act, 1961. The appellant respectfully prays that the directions of the CIT(A) to the AO be quashed and AO be directed to delete the disallowance of Rs. 25,90,46,464/-. Without prejudice to the above, the CIT(A) erred in determining ALP of the entire by merely resorting to of ALP determined by him pertaining to labour charges. In doing so, the CIT(A) ought to have appreciated that the contract awarded to L&T Geostructure LLP was a composite contract for execution of the project involving material and labour. GROUND - 20 Request for leave to add, alter, amend and....
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....d of underground ramp (near Shankar Vihar Metro Station) to Hauz Khas Metro Station and underground ramp near Shankar Vihar metro station and Underground metro stations at Vasant Vihar, Munirka, R.K Puram, IIT and Hauz Khas on Janakpuri west- Botanical Garden Corridor of Delhi MRTS Project of Phase-III The above parties entered Into a Pre-Bid Unincorporated JV Agreement on 30th April 2012 to jointly submit the bid for the Project and to jointly execute the works in the event of award of the contract to them. Subsequently a Joint Venture Agreement was also signed on 05.11.2012 by the said parties to formalize their mutual understanding. Finally, DMRC issued a Letter of Acceptance dated 01.11.2012 In favor of the JV for design and construction of the Tunnel Project. In the Special Audit report as reproduced in the assessment order, the Auditor has pointed-out certain items which have not been clarified by the assessee. The A.O. on the basis of the observations made in the special Audit report issued a detailed show cause notice to the assessee. The A.O. after considering the explanation of assessee on each items pointed out by the Special Auditor noted that assessee did not cooperate....
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....ent year 2013-14 was filed declaring nil income. 3. During the financial year 2012-13, the assessee JV recognised the revenue from sales and service under the head income of Profit & Loss Account which is equivalent to the expenditure incurred during the assessment year. The revenue comprises only closing WIP amounting to Rs. 27,30,48,673/- equivalent to the expenditure incurred, since 25% completion of the project was not achieved, the revenue could not be recognised on the basis of percentage of completion applied on the contract revenue. 4. During the financial year 2013-14 the percentage of completion of project was more than 25% and therefore revenue was recognized under percentage of completion method as per AS-7. The profit before tax as per profit and loss for the year ended 31-03-2014 was Rs. 8,11,57,341/- comprising of other income amounting to Rs. 1,56,66,920/-. 5. Till financial year 2013-14, the assessee JV incurred expenditure to the tune of Rs. 430,05,37,654/-. The contract value of the project was Rs. 12,60,86,50,700/-. Total estimated contract cost for the completion of the project was Rs. 12,41,95,20,939/-. The estimated profit margin was Rs. 18,91,29,761....
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....31, 2013 As on March 31, 2014. As on March 31, 2015. As on March 31, 2016 Revised Contract Value (A) 12,60,86,50,700 12,60,86,50,700 12,94,62,49,412 13,04,40,61,740 Revised Estimated Contract Cost (B) 12,41,95,20,939 12,41,95,20,939 12,91,49,03,647 13,45,16,06,509 Estimated Profit Margin (C) = (A) - (B) 18,91,29,761 18,91,29,761 3,13,45,765 (40,75,44,769) Total Cost incurred till the end of financial year (D) 27,30,48,673 4,30,05,37,654 9,95,83,65,195 12,86,38,95,727 Cost incurred in the previous financial years (E) - 27,30,48,673 4,30,05,37,654 9,95,83,65,195 Cost incurred during the financial year (F) = (D) - (E) 27,30,48,673 4,02,74,88,981 5,65,78,27,541 2,90,55,30,531 Cost of Completion (% age) (G) = (D) / (B) 2.20% 34.63% 77.11% 95.63% Total Revenue as per POCM (H) = (A) * (G) - Refer Note 27,30,48,673 4,36,60,28,076 9,98,25,35,915 12,47,41,60,664 Revenue recognised in previous financial years (1) - 27,30,48,673 4,36,60,28,076 9,98,25,35,915 Revenue recognised during the financial year (J) = (H)-(I) 27,30,48,673 4,09,29....
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....ries, stock in hand reflected an amount of Rs. 3,71,19,081/- as on 31.03.2013 and not a negative figure of Rs. 7,70,79,009/- as pointed out by the Special Auditor. The assessee tried to explain this issue many times clearly explaining the flow of entries into the system but some how they were bent upon reporting the said figure of issue in isolation. 5.3. The A.O. however did not accept the reasons given by the assessee and made the addition. The assessee challenged the addition before the Ld. CIT(A) explaining therein the same facts that there was no negative stock. The Ld. CIT(A) reproduced the clarification of the Special Auditor in the impugned order reiterating the same facts that there was a negative balance of stock in main depot A/c ledger as on 31.03.2013. The Special Auditor also referred to reply of the assessee as to how the difference of negative inventory adjusted in the books. The A.O. in the remand report also stated and reiterated that there was a negative balance as on 31.03.2013. The Ld. CIT(A) asked the assessee to produce ledger account of main depot account and other materials of stock and details of sundry creditors. The written submissions of the assessee ....
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.... PB-A1/11 and 19 as on 31.03.2013 shows closing inventory at Rs. 3,71,19,081/- in Schedules-G & M. He has, therefore, submitted that there was no negative stock. It is an accepted proposition in accounting that the closing stock of the previous year is considered as opening stock of the subsequent year. An examination of Schedule-M at page-19 of the PB-A1 would reveal that opening stock in the balance sheet as on 31.03.2013 has been reckoned at the figure of Rs. 3,71,19,081/-. Therefore, there is no infirmity in the financial figures in both the balance-sheets. PB-A1/32 is the assessment order for preceding A.Y. 2013-2014 under section 143(3) Dated 18.03.2016 in which some routine disallowance of expenses have been made. The A.O. accepted the books of account of assessee and the bank statements. PB-1 to 6 are the report of the Special Auditor. PB-24 is trial balance as on 31.03.2013 showing stock on site at Rs. 3,71,19,081/-. PB-26 to 42 is details of purchases of Rs. 7,70,79,009/- which is supported by bills and vouchers, copies of the same are filed on record. PB-43 and 44 are the details of advances given to creditors/suppliers outstanding before adjustment of material received ....
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....A.O. The assessee filed purchases entered into the books supported by bills and vouchers. He has, therefore, submitted that there was no difference in the accounts or in the balance-sheet. Since the assessee followed Percentage of Completion Method ("POCM") and offered income accordingly, therefore, this addition could not be made against the assessee. 7. On the other hand, Ld. D.R. relied upon the Orders of the authorities below and submitted that the trial balance of the Special Auditor was not supplied to the assessee. The assessee did not cooperate with the Special Auditor or the A.O. Ld. D.R. submitted that assessee failed to explain the transactions and no proper verification or investigation could be done for default of the assessee. The Ld. D.R, therefore, suggested that in view of the above fact matter may be set aside to the file of A.O. for fresh consideration. 8. We have considered the rival submissions and perused the material available on record. The assessee has filed complete details of purchases in a sum of Rs. 7,70,79,009/- supported by all the bills and vouchers. The assessee also filed copies of the audited report to show that in preceding A.Y. 2013-2014, th....
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....ring it to be an internal document at assessment stage, therefore, it cannot be used in evidence against the assessee so as to make this addition. Further, it is well settled law that entries made in the books of account are not determinative of question whether the assessee has earned any profit or suffered any losses. What is necessary is to consider, is the true nature of transaction and whether in fact it has resulted in profit or loss to the assessee. If income does not result at all, there cannot be taxed even though in book keeping an entry made by virtue of hypothetical income which does not materialize. Thus, the Income Tax Act does not recognise hypothetical or notional income which is not received or accrued to the assessee. We rely upon Judgments of Hon'ble Supreme Court in the cases of Sutlez Cotton Mills vs. CIT 116 ITR 1 (SC); Tuticorin Alcali Chemicals and Fertilizers Ltd., 227 ITR 172 (SC) and Godhra Electricity Co. Ltd., 225 ITR 746 (SC). If this addition is considered in assessment year under appeal and stock position is taken differently, it has to be given effect in closing stock of this year, resultantly, opening stock of next assessment year would be enhanced....
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.... in year one and 35% complete in year two would only have the incremental 15% of revenue recognized in the second year. The recognition of income and expenses on this work-in-progress basis applies to the income statement. The steps needed for the percentage of completion method are as follows : 1. Subtract total estimated contract costs from total estimated contract revenues to arrive at the total estimated gross margin. 2. Measure the extent of progress toward completion, by comparing total actual cost incurred till date with total estimated cost to arrive at percentage that contract costs incurred for work performed up to the reporting date bear to the estimated total contract costs. 3. Multiply total estimated contract revenue by the estimated completion percentage to arrive at the total amount of revenue that can be recognized. 4. Subtract the contract revenue recognized to date through the preceding period from the total amount of revenue that can be recognized. Recognize the result in the current accounting period. 5. Calculate the cost of earned revenue in the same manner. This means multiplying the same percentage of completion by the total estimated contrac....
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.... 125002 and 4283 Cost Centre Code LS125001. He has referred to PB-A1/172 and 173 in support of this contention that this much stock was available to assessee. Learned Counsel for the Assessee, therefore, submitted that since assessee reconciled difference of 4283 litres, therefore, assessee would not be pressing for the remaining difference of 4328 litres of diesel which will be aggregating to Rs. 2,40,160/-. 9. On the other hand, Ld. D.R. submitted that no documents were filed before A.O. Therefore, addition is liable to be sustained. 10. After considering the rival submission and in the light of documents available on record i.e., PB-A1/172 and 173 it is clear that assessee has been able to reconcile the difference of 4283 litres, therefore, to that extent addition is liable to be deleted. However, for the remaining amount, Learned Counsel for the Assessee did not press this ground for a sum of Rs. 2,40,160/-. We, accordingly, set aside the part addition and restrict the addition of Rs. 2,40,160/-. Ground No.2 of appeal of Assessee is partly allowed. 11. On Ground No.3, the assessee challenged the addition of Rs. 2.40 crores on account of mismatch in physical and book balan....
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.... that physical quantity as on 25.03.2014 TMT bars has been compared with the book stock and the resultant difference is 428.32 MT on account of scrap generated. Thus the physical stock was short and not in excess as incorrectly computed in the Special Audit Report. In the Special Audit Report, the book stock worked-out in Annexure-20 in line Item-4 has been treated as physical verification stock thereby creating an artificial negative stock. He has submitted that any excess quantity in the physical stock cannot automatically lead to a conclusion that there is an excess consumption of material and that excess expenses have been inflated. Learned Counsel for the Assessee referred to PB-52 to 54. In Page-54 the difference between theoretical and actual stock in 428.32 MT have been mentioned. He has submitted that Special Audit Report was filed later on for A.Y. 2014-2015, therefore, addition is wholly unjustified. 13. On the other hand, Ld. D.R. relied upon the Orders of the authorities below and submitted that A.O. has verified the facts mentioned in the Special Audit Report. The assessee has not pointed out the differences. The assessee has not produced any fresh evidence and has ....
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....stock in the books of the assessee resulting in excess expenditure by the assessee for which no evidence has been brought on record. Further any excess quantity in physical stock cannot automatically lead to conclusion that there is excess consumption of material to inflate expenses. Therefore, it appears that the addition is based on merely on presumptive reconciliation which is not justified. We, accordingly, set aside the Orders of the authorities below and delete the addition. Ground No.3 of the appeal of Assessee is allowed. 15. On Ground No.4, assessee challenged the addition of Rs. 25 lakhs on account of alleged stock of scrap determined based on theoretical consumption. The A.O. made the above addition as the Special Auditor has identified in SAR that there is a difference of 88.50MT on physical verification report of TMT submitted before Special Auditor. During the assessment proceedings assessee has given the same logic of theoretical calculation and during the course of appellate proceedings also assessee has explained that here is always a gap between theoretical calculation visà- vis actual calculation. The Ld. CIT(A) however, confirmed the addition. 16. The....
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....d. Therefore, no addition could be sustained of this nature. We, accordingly, set aside the Orders of the authorities below and delete the entire addition. Ground No.4 of the appeal of Assessee is allowed. 19. On Ground No.5, assessee challenged the addition of Rs. 1,54,12,773/- on account of disallowance of amortization expenses. 19.1. The A.O. made the above addition as assessee was amortizing the assets like T.Vs, Refrigerators, Air- Conditioners, furnitures etc., @ 5% per month i.e., 60% per annum against the normal depreciation rate which was to be allowed @ 10% per annum and difference of the same was added by the A.O. The assessee submitted that since Joint Venture has been formed for limited purpose for executing the project for DMRC, the assets employed for the project cannot be held long term benefit. The assessee has mentioned that statement of temporary structure is enclosed. The Ld. CIT(A), however, did not accept the contention of assessee because assessee is not entitled under Income Tax Act and Rules to claim excess depreciation. The addition was, therefore, confirmed. 20. Learned Counsel for the Assessee reiterated the submissions made before the authorities ....
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....uciary relationship between the assessee and the party. The A.O. also observed the findings of the Special Auditor that assessee was importing consumables from the German Enterprise, Herrenknecht, which is subsidiary in India in the name of "Herrenknecht India Pvt. Ltd", but despite this, assessee has imported TBM from Shanghai Pudong, for which 90% of payment was to be made after getting the shipping documents, but till the year end, no payment was made showing the fiduciary relationship between the assessee and the Company. The assessee at the appellate stage mentioned that SUCG i.e., member of the JV has long-standing relations with the vendor Shanghai Pudong Machinery Complete Equipment Co. Ltd who agreed to supply TBM without Letter of Credit and quotation of the German Company which was USD 9.75 million with LC Condition was not economical over the proposal of USD 9.8. Without L.C. as it was beneficial to the assessee. Similar discrepancies were pointed-out by the A.O. regarding TBM purchase from "Hubei Tiandi for Rs. 32,43,95,142/- and 3rd TBM purchased from one of the JV of L & T i.e., related party for Rs. 28,18,18,901/- and that the website of this company is actually a b....
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....d by State own Assets Supervision and Administration Commission (SASAC) only. For this, the information is gathered from different websites and relevant information is noted in the Order. It is noted that Shanghai - Pudong Company Limited was established in April, 1992 approved the establishment of the original Shanghai City Economic Commission is the large State Owned Enterprise under Shanghai Machinery Complete Equipment (Group) Company Ltd., The explanation of assessee was, therefore, not accepted. The Ld. CIT(A) uphold the findings of the Special Auditor and the A.O. that excess payment has been made to these companies. Further, no T.P. study have been provided and full information have not been given to the Auditor. The Ld. CIT(A) in the background of these facts further noted that the question would arise whether the estimate made by the Special Auditor and the A.O. is correct or not. The Ld. CIT(A) considering the fact that purchase was made in relation to fixed assets from the Associate Concern i.e., Shanghai - Pudong, the A.O. should have disallow only depreciation part. The Ld. CIT(A), accordingly, directed the A.O. to disallow 25% of the depreciation in relation to trans....
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....earned Counsel for the Assessee without prejudice to the above also submitted that Shanghai - Pudong is not a related party. It was submitted that 100% shareholding in the J.V. Partner Shanghai Urban Construction (Group) Corporation is held by Shanghai State Asset Supervision and Commission (SASAC). Whereas, the shareholder of Shanghai - Pudong is held by Shanghai Machinery Complete Equipment (Group) Corporation Ltd., The fact that shareholder of both the entities are Government organisations cannot lead to a conclusion that these are related parties. Learned Counsel for the Assessee, therefore, submitted that the addition is without any justification. 23. The Ld. D.R. on the other hand relied upon the Orders of the authorities below and submitted that Revenue is also in appeal on Ground No.2 against the Order of the Ld. CIT(A) in deleting the part addition. The assessee paid excess price for purchase of TBM and benefit would accrue to the J.V. The assessee changed the stand before the Ld. CIT(A). 24. We have considered the rival submissions. The authorities below considered this issue in the light of Special Audit Report which reported that assessee purchased fixed assets at u....
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.... per prevailing rates. Considering the totality of the facts and circumstances of the case, we do not find any justification for the authorities below to make any addition against the assessee. We, accordingly, set aside the Orders of the authorities below and delete the entire addition. Ground No.6 of the appeal of Assessee is allowed. However, Ground No.2 of the Departmental Appeal is dismissed. 25. On Ground No.7, assessee challenged the addition of Rs. 6,94,66,924/-. The A.O. made this addition in the light of observations of the Special Auditor that as per AS-10 and AS-2, the machinery spares which are not specified a particular item of fixed asset should be treated as inventory and the machinery spares which are specified to a particular class of asset should be capitalized as it belong to a particular class of fixed asset. The Special Auditor has mentioned that in the case of TBM which is primary fixed asset and its spares needed to be capitalized, therefore, assessee has wrongly claimed it to be revenue expenditure. The reply of the assessee before A.O. was that J.V. has adopted policy of not removing the original spares from the gross block and the replacement spares are....
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....venue in nature. 26. On the other hand, Ld. D.R. relied upon the Orders of the authorities below and submitted that assessee has capitalized the items in the fixed assets which shows the said assets were in the nature of fixed assets. The claim of assessee could be allowed as per Law only. 27. We have considered the rival submissions. The assessee explained before the authorities below that it had adopted a policy of not removing the original spares from gross block and the replacing consumable spares are charged to revenue in the year of purchase. The contention of assessee before Ld. CIT(A) had been that spares are purchased and utilised for replacement and did not increase the capacity of TBM. The same were meant for maintenance of TBM. The contention of assessee was not found incorrect. The assessee filed details of TBM consumable spare parts at page-93 of the PB which gives item description which were claimed as consumables which are bolt, stock sensor, hydro cylenders, belt, pipe, cable, single disc cutter etc., The nature of these items thus shows that these are consumable in nature and need for day-to-day wear and tear. The nature of tunnel boring machine itself shows t....
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....o the alternate plea raised by the assessee and allow depreciation to the assessee as per Income Tax Act and Rules, as applicable during the assessment year under appeal. Since no calculation of the claim so made in alternate contention was given, therefore, claim of assessee was rejected. Learned Counsel for the Assessee submitted that A.O. may allow the depreciation as per Rules. He has also submitted application of assessee under section 154 is also pending before A.O. 29. The Ld. D.R. on the other hand relied upon the Orders of the authorities below. 30. After considering the rival submissions, we are of the view that no interference is called for in the matter. The Ld. CIT(A) has already directed the A.O. to look into the alternate claim of assessee and allow depreciation to assessee as per Income Tax Act and Rules. Therefore, no further interference is required in the matter. A.O. is, therefore, directed to verify the items on which depreciation is claimed and also decide application under section 154 of I.T. Act as per Law and allow depreciation as per I.T. Act and Rules. With these observations, Ground No.8 of the appeal of assessee is disposed of. 31. On Ground No.9,....
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....he hands of the assessee. He has relied upon Judgment of the Hon'ble Supreme Court in the case of Sutlez Cotton Mills Ltd., 116 ITR 1 (SC) in which it was held as under : "Whether the loss suffered by the assessee was a trading loss or not would depend on whether the loss was in respect of a trading asset or a capital asset. In the former case, it would be a trading loss but not so in the latter. The law is well settled that where profit or loss arises to an assessee on account of appreciation or depreciation in the value of foreign currency held by it, on conversion into another currency, such profit or loss would ordinarily be trading profit or loss if the foreign currency is held by the assessee on revenue account or as a trading asset or as part of circulating capital embarked in the business. But, if on the other hand, the foreign currency is held as a capital asset or as fixed capital, such profit or loss would be of capital nature. Now, in the instant case, no finding was given by the tribunal as to whether the sums were held by the assessee in West Pakistan on capital account or revenue account and whether they were part of fixed capital or of circulating capital emba....
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....ispute that assessee purchased the machinery with reference to the above issue. The resultant foreign exchange fluctuation gain was capitalized by the assessee at the year end. The authorities below rejected the claim of assessee on the ground that Section 43A would not apply because the same provision applies to the exchange difference determined at the time of payment for equipment or at the time of actual payment of its loan. Whereas the process of ascertainment of exchange rate itself at the end of each financial year is not governed by Section 43A of the I.T. Act. The Ld. CIT(A) also noted that Section 43A would not apply because it would apply at the time of payment of capital expenditure and not for the year end valuation of foreign exchange. However, it is a fact that the assessee made a book entry at the end of the year with reference to capital asset on account of foreign exchange fluctuation gain which was capitalized. Thus the gain on transaction of foreign currency liability was in respect of capital asset which should have been considered as capital receipt only. Further even if Section 43A would not apply to the matter in issue because no actual settlement of liabili....
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.... the Income Tax Act, there is no concept of deferred revenue expenditure. Any expenditure of revenue nature is fully allowable in the year in which it was incurred irrespective of the fact that benefit from the said expenditure may accrue even in subsequent year. He has relied upon order in the case of CIT vs. Guruji Entertainment Net Work Ltd., 14 SOT 556 in which it was held that the expenditure incurred on account of production was deferred in the books of account but total amount of expenditure was claimed in computing the income tax. It was held that the same were to be allowed as revenue expenditure, notwithstanding the fact that part of such expenditure was carried to balance-sheet as deferred revenue expenditure. Same view is taken in the case of ACIT vs. Medicaman Biotech Ltd., 1 SOT 347, JCIT vs. Charka Pharmaceuticals 4 SOT 393 and CIT vs. Modi Oliveti Ltd., 38 taxmann.com 113. 37. On the other hand, Ld. D.R. relied upon Orders of the authorities below and submitted that design charges are for whole of the period of the contract having enduring benefit. Therefore, whole expenditure cannot be allowed. It was deferred revenue expenditure in nature. Therefore, addition is....
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....d to the assessee. However, the bank guarantee charges of Rs. 2,22,37,267/- which is claimed by assessee but pertains to liability of JV was not allowed in view of Terms of the Agreement. This ground was partly allowed by the Ld. CIT(A). The assessee is in appeal on the above ground and Revenue is in appeal on Ground No.6 challenging deletion of the addition. 40. Learned Counsel for the Assessee submitted that bank guarantee expenses once paid, it could not be deferred revenue expenses. He has submitted that it has two parts and referred to JV Agreement in the paper book. He has submitted that relevant facts are that assessee debited an amount of Rs. 2,22,37,267/- as bank guarantee charges, bifurcation of the same is as under : (i) Bank guarantee charges allegedly pertaining to subsequent years Rs. 1,84,77,400/-. (ii) Bank guarantee charges to be borne by SUCGT and not JV Rs. 37,59,867/- Total amounting to Rs. 2,22,37,267/-. 40.1. He has referred to observations of the A.O. based on Special Audit Report. It was submitted before the Ld. CIT(A) that A.O. has disallowed a sum of Rs. 1.84 crores as deferred revenue expenses without giving any basis. The Ld. CIT(A) while gi....
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.... that it has two parts as explained above. Since it was the liability of the JV partner, therefore, entire guarantee commission could not be allowed as expenditure. 42. We have considered the rival submissions. The assessee explained that it has debited an amount of Rs. 2,22,37,267/- as bank guarantee charges. Bifurcation of the same is given above. There is no concept of deferred revenue expenditure, therefore, same would also not apply to bank guarantee charges. The Ld. CIT(A) has correctly allowed the relief to the assessee of the amount which is paid by the assessee. The assessee has explained all the reasons, under which, the amount have been spent for business purposes. The Ld. CIT(A) allowed part relief to the assessee for sum of Rs. 37,59,867/-. Still the entire amount of Rs. 2.22 crores had been disallowed which was total amount consisting of two parts as explained above. The assessee has referred to JV Agreement which clearly provide that any fronting guarantee cost paid to the local Bank shall be paid directly by the JV, therefore, there was no justification to sustain any of the addition on this issue. It is well settled Law that guarantee expenses paid by the assesse....
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....D.R. relied upon the Orders of the authorities below. 45. We have considered the rival submissions and do not find any justification to sustain the addition. It is a fact that it is practically first year of business of assessee when revenue was recognised under POCM. Therefore, there could not be any prior period expenses as explained by the assessee. The assessee also explained method of accounting which has no impact on revenue recognition. Thus, there was no basis by the authorities below to make or sustain any addition. We, accordingly, set aside the Orders of the authorities below and delete the entire addition. In the result, Ground No.12 of the appeal of the Assessee is allowed. 46. On Ground No.13, the assessee challenged the disallowance of Rs. 50 lakhs. The A.O. made disallowance in respect of expenses incurred on four items i.e., Food expenses for staff outside Office, staff mess expenses, rent, co-lease BUNG project related, rent guest house and car hire charges which were spent by the assessee on Chinees expats as per the observation of the Special Auditor which is in the nature of perquisites in the hands of the employees and should have been added to the salary ....
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....ure. Learned Counsel for the Assessee submitted that it is an adhoc addition. In Section 40(a)(ia) of the I.T. Act, no disallowance could be made on account of payment of salary. Therefore, no addition could be made on this Head. 48. On the other hand, Ld. D.R. relied upon the Orders of the authorities below and submitted that A.O. has verified the information before making the addition. Since no TDS was deducted, so disallowance was correctly made. 49. We have considered the rival submissions and do not find any justification to sustain the addition. The A.O. has given the details of the expenditure incurred on account of food expenses for staff outside office, staff mess expenses, rent cum lease bung project related, rent for guest house and car hire charges. The A.O. noted that these expenses may be allowable as business expenses. Therefore, genuineness of the expenses have not been doubted by the A.O. that these expenses have been incurred wholly and exclusively for the purpose of business. However, A.O. was of the view that these expenses should be added to the salary of the employee of computation of TDS liability. A.O. has however, not pointed out as to how these busines....
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....ve its genuineness was produced before the Special Auditor and confirmation as fresh evidence was also filed. From perusal of the confirmation filed by the assessee, it was gathered that this confirmation is different from the vendor which was given to the Special Auditor. The Ld. CIT(A) noted that it is apparent that it is not clear from the reconciliation why the bill was not entered for the amount of Rs. 71,99,538/- and why advance TDS of Rs. 44,18,253/- was not booked by the vendor. Such a vague reconciliation deserve to be rejected. Further fresh evidence was not filed along with application under Rule 46A. The Ld. CIT(A), therefore, found that difference has not been reconciled. It was also noted that as per SAR the party has not booked TDS amount of Rs. 17,04,402/-, work order of Rs. 80,21,028/- as well as advance shown by the assessee of Rs. 90,29,913/-. Hence, this addition was confirmed by the Ld. CIT(A). 51. Learned Counsel for the Assessee reiterated the submissions made before the authorities below and submitted that assessee produced complete copies of bills, payment vouchers and bank statements to prove its genuineness of the books and recording of the liability. L....
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.... In the result, Ground No.14 of the appeal of Assessee is allowed for statistical purposes. 54. On ground No.15, the assessee challenged the addition of Rs. 8,66,87,701/- on account of mismatch in the balance of confirmations under section 68 of the I.T. Act, 1961. The Revenue on Ground No.3 on the same issue challenged the Order of the Ld. CIT(A) in deleting the addition of Rs. 117.86 crores out of sundry creditors under section 68 of the I.T. Act, 1961. 55. The A.O. has made the addition of Rs. 126.53 crores as the Special Auditor mentioned at page-180 as per Annexure-30 that assessee is not in the practice of taking vendor balance confirmation and this could not be produced before the Special Auditor during the course of Special Audit even after giving the extended time to the assessee. The A.O. has also mentioned that various confirmations which relates to the foreign parties could also have been arranged by the assessee by email as these confirmations could not be provided before Special Auditor or during the course of assessment proceedings, A.O. made the aforesaid addition. 56. The assessee challenged the addition before the Ld. CIT(A) and filed an application under Ru....
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.... the reconciliation is also not acceptable on merit. When this was confronted to the appellant in the rejoinder 19/03/2018, the appellant has given the RBI rate as on 31/03/2014 obtained from the website which is Rs. 60.998/- and not Rs. 59.92/- as taken by the Assessing Officer. As the Assessing Officer has objected that no bills and vouchers regarding the purchase of machinery from Shanghai Pudong was given by the appellant, during the course of appellate proceedings, the appellant was asked to produce the invoices and the bill of entries of custom clearance of this party. Regarding, the shortage of bills the appellant has mentioned that these bills and vouchers have already been given to the Assessing Officer and Special Auditor at the time of special audit and these vouchers are again given during the course of appellate proceedings by a separate letter dated 19/03/2018 mentioned supra in Para 16. As the appellant has given these invoices along with the custom clearance and no inquiry was conducted by the Assessing Officer regarding the verification of the same and the Special Auditor has also given his observation in the special audit against the genuineness of this tran....
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....entioned supra in para 15 are analyzed. However, from the details given by the Assessing Officer at Sl.No. 1 to 36 in the remand report in Annexure - A, it is gathered that appellant has shown less credit balance than shown by the vendors in the following cases : Sl.No. Name of the vendor Amount as per books of the appellant Amount as per books of vendor Difference 1. Ultratech Cement 52242995.04 65070329 (12,827,333.96) 2. L & T Geostructure LLP 28614654 118644050 (90,029,396.00) 3. BASF INDIA LTD (NEW DELHI) 18075892.1 20573772 (2,497,879.90) 4. SHREE GOPALA GRIT CO. 15122800.7 15713472.9 (590,672.20) 5. ORIENTAL FERRO ALLOYS P.LTD. 7097972.9 7097973 (0.10) 6. A.S. TRADERS 4509360.4 4847009 (337,648.60) 7. CONDAT CHINA CHEMICALS CO.LTD. 3959956 3959956.06 (0.06) 8. DEXTRA INDIA P.LTD. 4120071.4 4506134 (386,062.60) 9. ADOADDITIVES TECHNOLOGIES P. LTD. 3671971.8 3785928.84 (113,957.04) 10. VEEJAY SERVICE STATION 3247959 6960237.99 (3,712,278.99) 11. SHIVAM MINERAL SUPPLIERS 283081.7 43670258 (1,536,212.30) 12. MANGLAM ENTERPRISES 2654598.2 3449577 (794,978.80) 13. CO....
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....nces in the account is reconciled by the appellant showing computerized ledger account as per his books and unless this reconciliation statement is signed by the appellant this has no evidentiary value. The appellant has also confirmed that whenever vendor has enclosed ledger account along with confirmation this was forwarded otherwise the ledger account as per books of the appellant is given. This is not acceptable as in all the confirmations of the vendors, it is mentioned that ledger is enclosed which is not furnished by the appellant reasons best known to them. In this light, the reconciliation of the appellant in the case of following parties cannot be accepted as it suffers from various discrepancies which could not be explained by the appellant even at appellate stage. The details are as below : S.No Name of the Vendor Amount as per books of the appellant Amount as per books of vendor Difference 1. JSW Steel Ltd. 47302834.2 208238.06 26479028.20 2. Amberg. TTI Eng. Pvt. Ltd. 14349402 486830 13862572 3. Tondon Consultants Pvt. Ltd. 38,74,006 3864995 9011 4. Jet-First Intl. Log Pvt. Ltd. 35,92,539 3581777.92 10761.08 5. CT Nova E....
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.... (v) ITO vs. Smt. Umadevi Shankarappa Thimmaiah 49 taxmann.com 496. 57.1. Learned Counsel for the Assessee submitted that Ld. CIT(A) correctly deleted the substantial addition and on the proposition of the above decisions, the Ld. CIT(A) should have deleted the remaining addition as well. 58. On the other hand, the Ld. D.R. relied upon the Orders of the Ld. CIT(A) as regards the appeal of the assessee and relied upon the Order of the A.O. for deletion of the addition. He has submitted that the A.O. made the additions because the accounts could not be reconciled by the assessee and no confirmation have been filed by the assessee, therefore, appeal of assessee has no merit, same may be dismissed. However, as regards the Departmental Appeal, he has submitted that A.O. did not get proper opportunity to examine the sundry creditors, therefore, matter may be remanded to the A.O. for fresh verification and investigation. 59. We have considered the rival submissions. The findings of the Ld. CIT(A) are reproduced above in which Ld. CIT(A) have discussed each and every item and verified the facts from the record. It may also be noted here that assessee filed application Under Rule 46....
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.... 4.12 crores and for the rest of the amount of Rs. 4.54 crores, no confirmation have been filed. The Ld. D.R, therefore, rightly contended that since difference could not be reconciled and no confirmation have been filed, therefore, no interference is required in the matter. However, Learned Counsel for the Assessee has relied upon several decisions noted above in which it was held that when assessee disclosed purchases from the vendors, part of which have not been confirmed by them, no addition under section 68 of the I.T. Act, could be made. However, no such plea was taken before the authorities below and no such issue have been decided by the authorities below, therefore, this issue requires reconsideration at the level of the A.O. We, accordingly, set aside the Orders of the authorities below to the extent of addition sustained by the Ld. CIT(A) of Rs. 8,66,87,704/- and restore this issue to the file of A.O. with a direction to redecide this issue in the light of decisions relied upon by the Learned Counsel for the Assessee as per Law. A.O. shall give reasonable, sufficient opportunity of being heard to the assessee. In the result, Ground No.15 of the appeal of Assessee is allo....
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....h is filed in the paper book as well. It is reproduced in the appellate order in which in para 22.19.2 in the confirmation of L & T, it is explained that the total amount of Rs. 13 crores is two bifurcations of approx. Rs. 12.65 crores and approx. Rs. 35 lakhs. When both the figures are taken together there would be no difference in the investment. The Ld. CIT(A) noted that it was a new plea taken before him, therefore, addition was confirmed. There were no bar for the assessee to explain the issue by filing confirmation of the difference. Therefore, the matter requires reconsideration at the level of the A.O. We, accordingly, set aside the Orders of the authorities below and restore this issue to the file of A.O. with a direction to re-decide this issue in the light of confirmation filed by assessee from L & T to explain the above issue. A.O. shall verify break-up of the amount in question as mentioned in the confirmation. A.O. shall give reasonable, sufficient opportunity of being heard to the assessee. In the result, Ground No.16 of the Assessee is allowed for statistical purposes. 64. On Ground No.17, assessee challenged the addition of Rs. 44,68,235/- on account of notional ....
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....f A. Raman & Co. 67 ITR 11 (SC) held that "Law does not oblige a trader to make maximum profit." The assessee explained before the authorities below that it is for the Supervisory Board as per JV Agreement to see that funds are made available by both the members of the JV. The entire proceedings are supervised by the Supervisory Board, therefore, merely because one member of the JV has not contributed their capital in the JV is no ground of charging notional interest on the capital which is not contributed by the member of the JV. There is no provision under the Income Tax Act to charge notional interest in such circumstances. Learned Counsel for the Assessee also demonstrated that in fact assessee has declared negative expenditure of Rs. 2,26,95,787/- on account of interest (PB A1/26). Therefore, there is no justification of charging notional interest which were not due or collected by the assessee. We, accordingly, set aside the Orders of the authorities below and delete the entire addition. Ground No.17 of the appeal of Assessee is allowed. 68. On Ground No.18, assessee challenged the disallowance of Rs. 12,01,000/- on account of customary gift. The A.O. disallowed this amount....
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....f one of the Vendor was obtained on 14.12.2012. Besides this assessee has declared CUP method Arms Length Price ("ALP") which is based on quotation received from the Vendors, whereas, the CUP method evaluate the ALP by comparing the price and addition of the similar transaction between the taxable and unrelated party or between two unrelated parties. During the course of assessment proceedings, assessee has mentioned that this contract was given to the Associated Concern as the quotations of other contractors i.e., IPEX Infrastructure Pvt. Ltd., and Valecha Engineering Ltd., were found to be higher than the Associated Concern. However, the allegation of the Auditor was not controverted. The A.O. rejected T.P. study and added back the entire amount of Rs. 58,28,54,544/- made to the Associated Concern to the total income of the assessee. 73.1. During the course of appellate proceedings, the assessee filed written submissions claimed therein that quotation of building Diaphragm was called from these parties i.e., IPEX Infrastructure Pvt. Ltd., and Valecha Engineering Ltd., and related party L &T Geo Structure LLP and detailed T.P. study was also undertaken and submitted to the A.O. ....
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....Comparison possible Charges for Concreting (item 1.2) 6,213 700 6,095 660 65,917 - No Comparison possible. Charges for placing in position TMT (item 1.3) 60,962 5,751 59,801 5,975 58,059 58,059 No Comparison is possible as the rate given in the letter of intent includes charts for supply and labour to L&T whereas in the other two cases it is only charges for labour. 73.2. T73.2 The Ld. CIT (A) from the above chart noted that T.P. study is based on wrong facts and comparison is claimed to have been made on the basis of the quotations and these quotations are not part of the T.P. study and the letter of intent shows that actual work order given to the Associated Concern is on entirely different rate which is shown in T.P. study and the actual work given to the associated concern relates to labour as well as supply of the material but, what was given to other concerns only for labour and it cannot be ascertained whether comparison chart is even made on the basis of quotation. The Ld. CIT(A) also noted that DMRC for making Metro Station has given contract to various parties on identical work, therefore, T.P. study could have been made on real transaction ....
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....ss appeals. 74. Learned Counsel for the Assessee reiterated the submissions made before the authorities below. He has submitted that the authorities below considered this issue with regard to determination of ALP for A.E which is wholly incorrect. The assessee was awarded work of construction of thickness of wall of the tunnel. The assessee availed work of the three entities out of which L & T Geo structure is related party. The work which was given to IPEX Infrastructure Pvt. Ltd., and Valecha Engineering Ltd., is only for labour i.e., for civil work, but, the work order which is given to L & T Geo is in relation to charges for supply of material as well as for labour charges incurred on civil work. The addition is made on the basis of the comparison given in the table reproduced in this order showing the rates as per T.P. study and as per letter of intent. The addition is made on the basis of comparison given in this table. In Sl.No.1 "Installing cost (-) in (-) Situ in Soil 800 mm thick." 87% increase in the letter of intent as compared to the rate as per T.P. study is due to inclusion of material in the price quoted as per letter of intent. On this basis, addition is made to ....
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....f the tunnel meant for DMRC. The assessee awarded the work to three parties. One of them is related party namely L & T Geo Structure. In this case the work was awarded to this party for labour as well as for supply of the material. However, in the cases of other parties IPEX Infrastructure Pvt. Ltd., and Valecha Engineering Ltd., they have been assigned labour work, therefore, there cannot be any comparison of the rates in all these cases. The assessee has produced final bills of all these parties on record which supports the explanation of assessee in this regard. The Ld. CIT(A) at page 152 of the appellate order has also recorded the same submissions of the assessee which are also mentioned in the T.P. study which was filed before the Ld. CIT(A). Since assessee claimed that there was a marked difference in the comparison of the rates of both the parties with reference to the work awarded to them, therefore, there cannot be any comparison. At page 157 of the appellate order, the Ld. CIT(A) similarly noted that actual work order given to the associated concern is on entirely different rate which is shown in T.P. study and the actual work given to the associated concern related to l....
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....nt is dismissed. Appeal of Assessee partly allowed. ITA.No.4457/Del./2018 - Revenue Appeal 77. Some of the grounds in Departmental Appeal have already been adjudicated upon while deciding the appeal of the Assessee. The remaining grounds in Departmental Appeal are decided as under. 78. On Ground No.1 of Departmental Appeal, Revenue challenged the deletion of addition of Rs. 16.67 crores. The A.O. made this addition on the ground that Special Auditor has mentioned in SAR that no physical verification actually took place regarding stock in the case of the assessee and on this basis made the above addition as unexplained stock on estimate basis. The assessee submitted before the Ld. CIT(A) that regular physical verification of the stock was made and assessee has already credited Rs. 16,66,70,541/- as closing entry in the P & L A/c so again addition of Rs. 16.17 crores amount to doble taxation of the closing entry. 79. The submission of the assessee was given to the Special Auditor and A.O. for comments which were received in which it was reiterated by the Special Auditor that no stock statement was submitted at the time of special audit except verification of the stock of the va....