TaxTMI 
TaxTMI 
2019 (7) TMI 797
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....e quashed and AO be directed to delete the addition of 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 confirmin....
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....ere used to replace the worn off spares. The CIT(A) further erred in not appreciating the fact that these spares did not increase the capacity 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 o....
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....The CIT(A) erred in law and on facts of the case by confirming disallowance of expenses amounting to Rs. 9,99,67,544/- by treating it to be prior period expenditure without any basis by ignoring the accounting practice 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....
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....8,235/-. Ground - 18. Disallowance of expenses of Rs. 12,01,000/-. The CIT(A) erred in law erred in law and on facts of the case by confirming disallowance of an expense of Rs. 12,01,000/- incurred on gifts given to clients and business associates disregarding the same as a normal business practice. 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 o....
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....ticipating interest (i.e., profit/loss sharing ratio) as under : Sl.No. Name of Member Participating Interest. a. Shanghai Urban Construction (Group) Corporation, (SUCG) 32.0% b. Larsen & Toubro Limited (L&T) 68.0% 2.2. Delhi Metro Rail Corporation Limited ("DMRC") in short) had invited bids for the design and construction of tunnel from end 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 asse....
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....uction of five Metro Stations at Vasant Vihar, Munirka, R.K. Puram, IIT and Hauz Khas in Delhi Metro Phase-III. 2. The total value of the work awarded by DMRC to JV was Rs. 12,60,86,50,700/- . The work of DMRC project was commenced by JV during the financial year 2012-13 itself. However, since 25% completion of the project was not achieved, the return of income for the assessment 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 ....
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....ded 31-03-2014. The revenue was correctly recognised by considering total cost incurred up to 31.03.2014. 5.1. In support of the same, the assessee also filed a chart of preceding assessment years, assessment year under appeal as well as subsequent assessment years to show as to how the revenue has been recognised on Percentage Completion Method. The same is reads as under: L & T SUCG JV CC 27 Delhi As on March 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 fi....
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....in stock account showing negative amounts as it represents the issue of stock. The inventory module will never accept the issue unless it has that material in its stock at that particular movement. As the recording of the MRN goes through various controls some times it gets delayed and thereby resulting in late recording of the stock into accounting system. However, as and when the MRN gets approved the receipt and ultimately the stock gets recognised into system and correctly reflects the stock in hand. Based on this premise after the recording of entries, 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 Audito....
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....ing the issue on merit noted that no such claim or documentary evidences could be produced before the Special Auditor or before A.O. during the course of assessment proceedings and no explanation is given regarding the contra entry made. The Ld. CIT(A) going by the Special Audit Report ["SAR"] and findings of the A.O. confirmed the addition. 6. The Learned Counsel for the Assessee reiterated the submissions made before the authorities below. He has referred to PB-A1/4 which is P & L A/c of assessee to show assessee declared profit of Rs. 8,11,57,341/-. 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 sec....
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....ce compiled by the Auditors should be provided to it. The A.O. however stated that the trial balance is an internal document and the conclusion of the Special Auditor had been communicated to the assessee. There was no reason why the copy of the same was required by the assessee. Learned Counsel for the Assessee submitted that copy of the trial balances prepared by the Special Auditor was not supplied to the assessee which is sole basis to make addition. Therefore, there was no default on the part of assessee in replying before the Special Auditor or the 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 ....
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.... sundry creditor's account as on 31.03.2013 was reflected at Rs. 12,55,31,168/- which is also mentioned in the audited accounts. In view of these facts, contra entry was made in the books of account on 31.03.2013 which also belong to the preceding assessment year and could not be subject matter of dispute in assessment year under appeal i.e. 2014.2015. Thus, the explanation of assessee is plausible and reasonable which should not have been rejected by the authorities below. Since trial balance compiled by the Auditor was not provided to the assessee considering 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 ....
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.... in which the work is performed. Contract costs are usually recognised as an expense in the statement of profit and loss in the accounting periods in which the work to which they relate is performed. The percentage of completion method of accounting requires the reporting of revenues and expenses on a period-by-period basis, as determined by the percentage of the contract that has been fulfilled. The current income and expenses are compared with the total estimated costs to determine the tax liability for the year. For example, a project that is 20% complete 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 p....
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....addition of Rs. 4,77,817/- was made by the A.O. The assessee filed written submissions before Ld. CIT(A) and it was mentioned that Special Auditor has considered one cost centre which was 717 litre and ignored the others. However, the Ld. CIT(A) noted that assessee did not file matching figure, therefore, addition was confirmed. 8.4. Learned Counsel for the Assessee referred to PB- 183 which is reply filed before the authorities below in which it was explained that the diesel stock as per stock statement as on 31.03.2014 was 5000 litres. This comprise of 717 litres of Cost Centre Code LS 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 l....
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....ove hypothesis, there is no other reason, evidence or material in the orders to make the addition. He has submitted that details mentioned in the above table are appearing in the Annexure filed in the Paper Book. As per the above table, the figures indicated in Column-A are as per stock statement in Annexure-4 and figures mentioned in Column-B are as per physical verification report as on 25.03.2014 and difference is worked out as per Column-C. The comparison made in the table in the Special Audit Report is totally incorrect. Such an incorrect comparison was bound to lead absurd results. On examination of Annexure-20 referred above would show 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 conclusio....
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....low or the Special Auditor. The same facts are mentioned in the reconciliation statement at page-54 of the PB. Even by the nature of the item i.e., TMT used in construction would also supports the explanation of assessee that TMT could not be used in the same shape as have been supplied by the supplier. The assessee also explained that TMT bar suppliers given the weight of supplies with 2 to 5% margin in actual weight. Since all these facts have not been controverted by the authorities below, therefore, it appears to be an adhoc addition without any basis or material on record. Further, the A.O. merely presumed that there is an excess issue of 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 Gr....
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....red the rival submissions and do not find any justification to sustain the addition. This ground is co-related with Ground No.3 above in which we have deleted the addition on account of theoretical and actual stock which is the basis for making this addition as well. The assessee has produced sufficient evidence on record to prove that in subsequent year assessee has sold further scrap which have been accounted for as income in subsequent year. The A.O. has given contradictory finding on Ground Nos. 3 and 4 on the identical issue. The A.O. has merely relied upon audit report for making the addition without bringing any evidence or material on record. 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....
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....see. Ground No.5 of appeal of Assessee is allowed for statistical purposes. 22. On Ground No.6, the assessee challenged the disallowance of depreciation on account of excess payment for acquiring fixed assets of Rs. 18,52,44,595/-. 22.1. The A.O. made the addition of Rs. 30 crores on the ground that Special Auditor has proposed this addition as the Tunnel Boring Machine ("TBM") purchased from Shanghai Pudong Machinery Complete Equipment Co. Ltd., a China based company for Rs. 59,71,20,670/- during the year under consideration which got capitalized on 30.01,2014, This TBM was purchased without any "Letter of Credit" which implies that there is a fiduciary 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 as....
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.... of JV SUCG and the Company viz., Shanghai - Pudong. The assessee in the written submissions has mentioned and claimed that in order to establish that Shanghai Urban Construction (Group) Corporation and Shanghai - Pudong are not related parties, Enclosed herewith the shareholding of both the companies as sent by the respective Companies. It would establish that both are not related companies. The shareholding pattern was also given which is reproduced in the appellate order. The Ld. CIT(A) however, did not accept the contention of the assessee. The Ld. CIT(A) noted that assessee has claimed that it was not related to the party because it was actually owned 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 find....
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.... L & T JV, it may be noted that correspondingly the price computed was also less by an amount of Rs. 4 crores. Further German company Herrenknecht has set-up manufacturing plant in China and TBM purchased from Shanghai - Pudong was manufactured for this plant. There is a time gap between installation and commissioning in both the cases. There is no difference between custom duty exemption in both the cases. There were no basis for the authorities below to make any addition. TBM was purchased during F.Y. 2012-2013 for which assessment under section 143(3) had already been completed after examining the T.P. report which includes purchase of this machinery. Learned 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....
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.... purchased in preceding assessment year in which assessment under section 143(3) have already been completed. Therefore, such an item could not be disputed in assessment year under appeal. The Ld. CIT(A) without any basis or justification held that assessee has paid excess payment for purchase of TBM. The Ld. CIT(A) without any justification has disallowed depreciation @ 25%. It may also be noted that while deciding Ground No.15 in this appeal, the Ld. CIT(A) noted that all the transactions with M/s. Shanghai - Pudong Machinery Complete Equipment Ltd., have been confirmed by the Commissioner of Customs (Imports) and all the invoices were found genuine and as 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 observation....
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....Court in the case of CIT vs. Banco Aluminium Ltd., 93 taxmann.com 52 in which it was held that "where assessee engaged in business of manufacturing of Aluminium extruded sections, claimed deduction of expenditure incurred on tools and dies, in view of the fact said tools and dies were consumable in nature, amount spent on the same was to be allowed as business expenditure. In this case, it was noted by the Tribunal that due to frequent change in design of products and heavy wear and tear at the time of use, life of dies and tools was very short. Learned Counsel for the Assessee submitted that authorities below should have allowed the claim of expenditure as revenue 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 reve....
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.... has also mentioned that the contention of the assessee that it has not charged depreciation, but, in fact amortized the cost of the asset is not acceptable under section 37 of the I.T. Act as the capital expenditure is not allowable. The Special Auditor has worked-out allowable depreciation of Rs. 9.34 crores as against claim of Rs. 14.25 crores and excess claim of depreciation of the impugned amount was disallowed. 28.2. The assessee reiterated the submissions made before the Ld. CIT(A). It was also submitted that disallowance should be restricted to Rs. 2,94,44,949/- as per calculation given before A.O. The Ld. CIT(A) accordingly directed the A.O. to look into 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 ....
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....axable because it is capital receipt. Section 43A apply to capital expenditure, details are filed at pages-98 and 99 of the PB. The assessee restated the amount of outstanding liability payable in foreign currency as on 31.03.2014. The resultant foreign exchange fluctuation gain was capitalized by the assessee. The assessee has been following the AS-11 in respect of the foreign currency transaction and accordingly has credited the gain on end of the year to the cost of fixed asset as the liability against the said asset was still pending. The gain on transaction of foreign currency liability in respect of capital asset was capital receipt. Hence, not subject to tax in the 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 de....
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....t to tax in the hands of assessee being on account of capital transaction. He has also relied upon Judgment of Hon'ble Supreme Court in the case of CIT vs. Woodword Governor Pvt. Ltd., 312 ITR 254 (SC). 33. On the other hand Ld. D.R. relied upon the Orders of the authorities below and submitted that after Amendment of Section 43A w.e.f. 01.04.2003 provisions of Section 43A are attracted only at the time of actual payment and do not apply to year end adjustment for exchange rate differences. 34. We have considered the rival submissions. It is not in dispute that assessee restated the amount of outstanding liability payable in foreign currency as on 31.03.2014. It is also not in dispute 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....
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....venue expenditure. The A.O. did not accept the contention of the assessee on the ground that there is no separate billing on the client towards the design and this activity is part of substantial cost related to the entire project and the project is based on project completion method, therefore, addition was made. The Ld. CIT(A) on the same reasoning, confirmed the addition. 36. Learned Counsel for the Assessee reiterated the submissions made before the authorities below and submitted that there is no Law of deferred revenue expenditure. Designed is provided for start of the project itself. Only thereafter, the work has started. So, it is revenue in nature. He has submitted that under 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 ....
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....37,59,867/- provided by SUCG should not have been debited in the P & L A/c of the JV as per the Agreement. The A.O. did not accept the plea of the assessee that in Clause 13.1 of the Agreement any fronting guarantee cost paid to local branch shall be paid directly by UJV. The assessee in the written submissions has repeated this submission made before A.O. During the course of appellate proceedings, assessee was asked to give clarification regarding fronting bank guarantee which was given by the assessee. The Ld. CIT(A) considering the explanation of assessee, did not find any justification in disallowing this amount which is paid by the assessee and the amount of Rs. 37,59,867/- was allowed 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....
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....of an enduring nature; nor did it bring in any other advantage of an enduring benefit. The acquisition of the machinery on installment terms was only a business exigency. If interest paid on a credit purchase of machinery could be held to be revenue expenditure, one failed to see how guarantee commission paid to a bank for obtaining easy terms for acquisition of the machinery could be regarded as capital payments." 40.2. He has submitted that the aforesaid decision has been confirmed by the Hon'ble Supreme Court by dismissing the Departmental Appeal in the case CIT vs. Sivakami Mills Ltd., reported in [1997] 227 ITR 465 (SC). 41. On the other hand, Ld. D.R. relied upon the Orders of the authorities below and submitted 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 char....
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....sidered. It was submitted that during preceding year the activity on the project awarded by the DMRC was commenced. Project did not achieve a completion level of 25% and therefore, revenue was not recognised under Project on Completion Method ["POCM"]. During assessment year under appeal 25% completion was achieved and, therefore, revenue was recognised by applying POCM. It is on account of this fact the amount incurred on purchases and sub-contracts during F.Y. 2012-2013 were claimed as expenditure in which year, in which, POCM was applied for the first time. These expenses can by no stretch of imagination be termed as expenses pertaining to prior period, therefore, no disallowance could be made. 44. On the other hand, Ld. 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 ....
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....t under the Head "Staff Mess Expenses" which are not perquisite in nature. No specific car is allotted to any expats staff. These are hire charges pertains to car taken on hire for movement of staff including expats from site to site - site to DMRC office and other official work. No car is allotted to any employee or expats. Guest house have been maintained by the assessee for accommodating the staff on temporary basis at the time of joining or coming to the city. From the nature of these expenses, it is apparent that same have been incurred during discharging of official duties by the staff in the course of execution of the project. The authorities below have not been able to point out how these expenditure were perquisite in nature. 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. ....
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....peal of Assessee is allowed. 50. On Ground No.14, the assessee challenged the addition of Rs. 90,29,913/- on account of mismatching balance confirmation of vendor M/s. SB Protech. During the course of assessment proceedings, assessee has mentioned that assessee has correctly paid the amount of Rs. 90,29,913/- against the duly approved bill of the vendor and rightly booked the expenses. The A.O. has not accepted the submission of the assessee as the vendor has given confirmation without showing certain bills and Special Auditor has also mentioned this fact in the Special Audit Report. During appellate proceedings, assessee filed written submissions and claimed that complete copy of bills, payment vouchers and bank statements to prove 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. 44,18,2....
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....but, we are of the view that the matter requires reconsideration because of the two different confirmations have been filed by the party. In case, any need the A.O. could have also examined the concerned party for verification of all the entries in the books of account of assessee. We, accordingly, set aside the Orders of the authorities below and restore the matter in issue to the file of A.O. with a direction to re-decide this issue on the basis of the documentary evidences produced by assessee and in case there is any need A.O. may summon the party and examine their records or record their statements in order to come to the just decision in the matter. A.O. shall give reasonable, sufficient opportunity of being heard to the assessee. 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. Ac....
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....ghai Pudong Machinery Complete Equipment Co. Ltd., the Assessing Officer in the remand report has mentioned that as per books of the appellant, the balance of this company is of Rs. 74,09,78,381/- whereas as per the confirmation given by the vendor this is Rs. 72,64,59,354/- and there is a difference of Rs. 1,45,19,027/-. However, the Assessing Officer has claimed that all the bills have not been attached with the confirmation, the confirmation of the party is not original and the reconciliation which is given is neither signed nor stamped and not verified by the vendor or by the appellant. The Assessing Officer has also mentioned that the appellant has to take RBI rate for conversion of foreign currency as on 31/03/2014 hence, the rate given in 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, durin....
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....llant as Rs. 60.998. However, the rate taken by the appellant is verified from the website of RBI and the rate of RBI is Rs. 60.998/- from 28/03/2014 to 31/03/2014 and on this account also there is no difference in the rate as given by the Assessing Officer in the remand report dated 09/01/2018 mentioned supra in para 7. Hence, no addition is called for on account of rate difference of these parties and the appellant will get relief on this account. (c) In the remand report dated 13/03/2018, the Assessing Officer has given reply on merit of all the 36 parties and discrepancies have been pointed out. In this light, remand report of the Assessing Officer given in Annexure-A mentioned supra in para 12, the confirmations of all the parties and the rejoinder of the appellant mentioned 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 ....
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....pancies in the confirmation letters such as bills are not attached, the copy of ledger is not attached, PAN and address is not given and reconciliation as well as the ledgers are not stamped or signed. These discrepancies are not repeated here for the sake of brevity. When this has been given to the appellant, in the rejoinder dated 19/03/2018, the appellant has given the reply that reconciliation is not signed by the appellant, we indicate to sign/stamp all the reconciliations and consider that these are signed and stamp by the appellant. Surprisingly such statement on the part of the appellant is not acceptable as the matter of reconciliation of the vendor's account is raised since the period of special audit which was not done by the appellant. Further, during the course of assessment proceedings also the appellant has failed to do this before the Assessing Officer. Now, with the application under Rule 46A these are filed as additional evidences and the differences 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 a....
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.... the above submissions, the provisions of Section 68 cannot be applied in the case of trade creditors. It needs to be appreciated that out of total creditors aggregating to Rs. 126.53 crores, confirmations to the extent of Rs. 117.86 crores have been filed. The A.O. having accepted the purchases of the assessee, even if certain parties did not furnish confirmations would not mean that it was concealed income or deemed income of the assessee which could be subjected to tax under section 68 of the I.T. Act, 1961. He has submitted that since purchases have been disclosed by assessee from vendors and substantial purchases have been confirmed, therefore, no addition under section 68 could be made. In support of his contention, he has relied upon the following decisions : (i) Zazsons Exports Ltd., vs. CIT 88 taxmann.com 617 (Alld.) (HC) (ii) Raghubir Singh vs. DCIT 83 taxmann.com 187 (iii) DCIT vs. Divine International 16 taxmann.com 262 (iv) Bhagyanagar Oil Industries vs. ITO - ITA.No.1178/Hyd/2012 (Hyderabad (Bench). (v) ITO vs. Smt. Umadevi Shankarappa Thimmaiah 49 taxmann.com 496. 57.1. Learned Counsel for the Assessee submitted that Ld....
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.... assessee has claimed depreciation only on this item, therefore, there could not be any discrepancy in their account. As regards other difference of Rs. 3.36 crores, it was mainly on account of RBI rate which have been clarified by the RBI through their website, in which, no discrepancy have been pointed out by the Ld. D.R. The Ld. CIT(A) has also considered the cases of 26 vendors specifically in his findings and found that credit balance shown by the assessee was less than the balance shown by these vendors in their confirmations. This fact is also not disputed through any evidence or material on record. On the basis of these finding of fact recorded by the Ld. CIT(A), we are of the view that Ld. CIT(A) correctly deleted the substantial addition. No material have been brought on record to contradict the finding of fact recorded by the Ld. CIT(A). Therefore, Departmental Appeal has no merit and Ground No.3 of the appeal of the Department is dismissed. 59.1. As regards appeal of assessee, Ld. CIT(A) found that assessee could not reconcile difference of Rs. 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, righ....
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....net asset method. Hence, we have considered the net asset from UJV as out investment instead of total amount funded. The difference between the amount funded in UJV and net asset is grouped under "due to from UJV" under current account." Bifurcation of same is also given. The Ld. CIT(A) did not accept the contention of assessee and confirmed the addition. 61. The Learned Counsel for the Assessee reiterated the submissions made before the authorities below and referred to PB 138 to 140 to explain that if two amounts are taken together, it would give a correct figure shown in the books of account of the assessee of the equivalent amount and there is no difference. The L & T has furnished confirmation along with reconciliation of both the two breakup should be verified by the A.O. 62. On the other hand, Ld. D.R. relied upon the Orders of the authorities below and submitted that fresh evidence should not be admitted at this stage. 63. We have considered the rival submissions. The assessee has filed confirmation of L & T before authorities below, copy of which is filed in the paper book as well. It is reproduced in the appellate order in which in para 22.19.2 in the confirmatio....
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.... Disallowance of interest on such notional hypothesis is not permissible as per provisions of the Act. On close examination of the audited P & L A/c would reveal that assessee has in fact declared a negative expenditure of Rs. 2.26 crores on account of interest. Therefore, in fact, the lower authorities have brought to tax of notional income which is not permissible in Law as is held by the Apex Court in the case of CIT vs. Godhra Electricity Supply Co., 225 ITR 746 (SC). He has referred to A1/26 in support of the above contention. 66. On the other hand, Ld. D.R. relied upon the Orders of the authorities below and submitted that net interest could be considered in the matter. 67. We have considered the rival submissions and do not sustain the orders of the authorities below. The Hon'ble Gauhati High Court in the case B & A Plantation and Industries Ltd., 242 ITR 22 (Gau.) held that "there is no provision in Income Tax Act empowering the ITO to include in the income of the assessee interest which was not due or collected." The Hon'ble Supreme Court in the case of A. Raman & Co. 67 ITR 11 (SC) held that "Law does not oblige a trader to make maximum profit." The assessee explain....
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....ased. However, some bills and vouchers were produced before the authorities below copies of which are also filed in the paper book. The Diwali gifts have been purchased through banking channel. The Diwali gifts given to the clients and other associates for business purposes are allowable expenditure. We, therefore, set aside the Orders of the authorities below and delete the entire addition. Ground No.18 of the appeal of Assessee is allowed. 72. On Ground NO.19 assessee challenged the addition on account of determination of ALP in respect of transaction with AE of Rs. 25,90,46,464 and the Revenue on Ground No.5 has challenged the Order of the Ld. CIT(A) in deleting the addition of Rs. 32,38,08,080/-. 73. The A.O. has made the addition of Rs. 58,28,54,544/- on the ground that the Special Auditor has observed that the transactions with the related concerned i.e., L & T Geo Structures is made where contract was awarded on available terms and actual comparison has never taken place as the contract is awarded to the Associated Concern on 10.12.2012 whereas the quotation of one of the Vendor was obtained on 14.12.2012. Besides this assessee has declared CUP method Arms Length Price....
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....oted in T.P. study is entirely different from the letter of intent of actual work order. The details as per letter of intent given by the assessee to these companies are reproduced at pages 153 to 156 of the impugned order. The Ld. CIT(A) considering the chart as per letter of intent and chart given in the T.P. study noted the following facts in the chart below : Valecha IPEX L & T Geo Particulars Rate as per TP study Rate as per letter of intent Rate as per TP study Rate as per letter of intent Rate as per TP study Rate as per letter of intent Percentage of excess payment to L & T as per letter of intent of L-1 Installing cast in situ in soil 800mm thick (item 1.1a) 5,677 5166 5569 5100 5407 9536 87% Installing cast in situ in soil 1000mm thick (item 1.1a) 6,477 - 6354 - 6169 11263 No Comparison is possible. Installing cast in situ in soil 800mm thick (item 1.1b) - 19000 - 12380 - - No Comparison is possible. Installing cast in situ in soil 1000mm thick (item 1.1b) - - - - - - No Comparison possible Charges for Concreting (item 1.2....
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....ociated concern. However, as the appellant has failed to give the correct Arm's length price, a fair and reasonable estimate is the only method which can be used to arrive the excess payment made to the associated concern by the appellant. 22.23.9. From the letter of intent given by the appellant to these concerns it is apparent that there is the actual transactions of the labour cost only which is comparable amongst all these three parties including the associated concern as per the chart mentioned in para 22.23.4 which is 87% more as compared to other two parties. Hence, the fair estimate can be made that the cost of the work which is given to the associated concern is approximately high by at least 80%. Hence, the Arm's length price for the associated concern is Rs. 32,38,08,080/- (58,28,54,544x100/180). In this light, I am constrained to observe that the appellant has made excess payment to the associated concern of Rs. 25,90,46,464/- (58,28,54,544 - 32,38,08,080). In this light, the addition made by the AO of Rs. 58,28,54,544/- is restricted to Rs. 25,90,46,464/- and the appellant will get relief accordingly." 73.3. Both the parties are in cross appeals. 74. Lea....
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.... assessee followed CUP method consistently, but, the Ld. CIT(A) did not apply any method and made the addition merely on estimate. PB-215 to 217 are the details filed before the A.O. at remand proceedings. It is difficult that out of total work of Rs. 58.28 crores, assessee would earn the profit of Rs. 25.90 crores as estimated by the Ld. CIT(A). The Special Auditor did not recommend for any addition. There were no basis for making this addition. No evidence of any excess payment to A.E have been found against the assessee, therefore, entire addition is wholly unjustified. 75. On the other hand, Ld. D.R. relied upon the Orders of the authorities below and submitted that quotation and T.P. study was not filed. The A.O. in the remand report filed before the Tribunal also reiterated the same facts in the remand report and also submitted that in support of the above contention the assessee has not filed any documentary evidences. 76. We have considered the rival submissions and do not find any justification to sustain any addition. The facts as noted above are undisputed that assessee was awarded contract by DMRC and this issue relates to construction of wall of the tunnel meant ....
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.... the assessee, therefore, addition of this nature should not have been sustained by the authorities below because assessee has been following the POCM method consistently. Ultimately, everything is settled in subsequent year when the entire contract work have been completed by the assessee. We may further note that considering the total amount of the contract along with revised contract value, it is difficult to accept the department's contention that assessee would earn huge profit out of the same. It appears that Special Auditor without looking the entirety of the facts and circumstances of the case made the addition in haste without going through the composite work of the assessee in the light of POCM method adopted by the assessee. We, accordingly, do not find any justification to sustain even the part addition on this issue because authorities below have failed to make out a case as to how determination of ALP was justified in this case. In view of the above discussion, we set aside the Orders of the authorities below and delete the entire addition. In the result, Ground No.19 of the appeal of Assessee is allowed and Ground No.5 of the appeal of the Department is dismissed. Ap....
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....has already credited Rs. 16.66 crores as closing entry in P & L A/c, therefore, it would be double addition. The Ld. CIT(A) found that there were no basis for the A.O. or Special Auditor to make the addition. It was an adhoc addition merely on presumption. The Ld. D.R. could not produce any evidence or material to contradict the finding of fact recorded by the Ld. CIT(A). Ground No.1 of the Departmental Appeal is dismissed. 83. On Ground No.4, Revenue challenged the deletion of addition of Rs. 66 lakhs. The A.O. made the addition on the ground that Special Auditor has observed that assessee has sub-contracted few activities like catering, travelling, etc. to small individual contractors and bills of these subcontractors was not produced. During the course of assessment proceedings, assessee has mentioned that these are paid by account payee cheques and copies of the invoices are produced which have not been accepted by the A.O. on the ground that assessee was required to prove the genuineness of these parties which could not be produced. Copy of the ITR of parties/sub-contractors regarding services rendered by them to the company were not produced. 83.1. The assessee challeng....