AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (10) TMI 980
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....e assessment for the assessment year 2004-05, the AO found, inter alia, that it bought a rice mill at Davangere in Karnataka on 20.11.2000 and sold it as a composite sale in "as is where is" condition to one of its Directors Shri A.R. Subramanian on 18.06.2003 i.e., during the assessment year 2004-05 and credited with Rs. 95,61,762/- towards goodwill in its books without obtaining any money from him. Since the property was used by the assessee for its business and depreciation has been claimed by it in the earlier years, the AO held that the profit from the transfer would be shortterm capital gains. The assessee was asked to furnish the guideline value for the purpose of assessing the market value of land u/s.50C and the break up of the capitalized amount including the cost of land. Since the assessee could not furnish any evidence to prove the purchase price of the land and in the absence of any details, the AO has treated it as short term capital gains. Aggrieved, the assessee filed an appeal against the treatment of profit on sale of land as short-term capital gain. It contended that the AO did not assign any value to the cost of land and adopted the entire market value of the ....
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.... in the depreciation schedule and the Supreme Court had held long time ago in the case of ALPS theatre that there is no deprecation for a land. The learned Assessing Officer erred in disallowing the deduction under section 80G for the sole reason that the receipts were produced in the course of the hearing and that the claim was not made in a revised return and the learned CIT(A) erred in confirming the disallowance. 4. Per contra, the Ld.DR submitted that the assessee has purchased the rice mill such as land and building, machineries etc as per books for Rs. 1,05,24,960/- and capitalised in its books at Rs. 1,19,05,102/- including the improvements and it had claimed depreciation in the earlier years on the entire amount capitalized which included cost of the land. The AO required the assessee to furnish the market value of the land as on the date of transfer in June 2003 by way of book entry. The assessee could not produce any evidence to indicate the cost of the land included in the total purchase cost. The total area of the land is 3 acres and 5 Guntas. From a print out taken from the internet as on 21.12.2006, as per which the value land at Mahajanahalli Municipal limits (bein....
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....he assessee has not given the bifurcation of assets and its value which were capitalized and also has claimed depreciation all along even on the value of acquired, we do not find any infirmity in the findings of the Ld.CIT(A) that the AO has rightly taken the value of land at Nil and treated the profit as short term capital gain and hence we dismiss corresponding grounds of the appeal of the assessee. 5.1 On the claim of deduction u/s 80G, the fact remains that during the assessment proceedings itself, the assessee has produced donation receipts for Rs. 18,000/- & Rs. 36,000/- paid to Amar Seva Sangam, which was eligible for deduction U/s.80G as per order dated 29.09.2003 of the CIT-II, Madurai and was valid upto 31.03.2006 and on such material it claimed deduction U/s.80G. The AO refused to allow such claim as the assessee has not claimed this deduction in its return. Since the assessee has relied on the Hon'ble SC decision in the case of Goetze India Ltd v CIT (2006) 204 CTR (SC) 182, we direct the AO to reconsider this claim and allow the relief, if the claim is found meritorious on other respects, as if this claim was made in the original return itself. The corresponding groun....
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....sked to explain about the quantitative details of the sale with corresponding purchase to sales. It was explained that the paddy/rice was purchased by the lessee, M/s. Peninsula Food Products Ltd, a sister concern. Since the Processing of paddy/rice is not a onetime transaction but a continuous process, the AO held that the byproducts are also produced continuously. Therefore, there should be an opening and closing stock of byproducts such as broken rice/bran at the end of every year. Since the assessee failed to produce the quantitative details of the sale of broken rice / bran, also the quantitative details of closing stock of bran and broken rice, the AO rejected the books of account maintained by the assessee and estimated its income relying on Briz Byhushan Lal Parduman Kumar vs. CIT (115 ITR 524). Since the assesses sold away the by products of bran and broken rice, the AO held that there is no requirement for the expenses towards travel, carriage inwards etc, and treated the entire sale proceeds of Rs. 68,09,001/- as income of the assessee and completed the assessment. On appeal, the Ld. CIT(A) dismissed the appeal. Against the order of the Ld. CIT(A), the assessee filed t....
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....s activity, cannot be termed to be a temporary phase. The case laws relied upon by the Ld. AR are not directly on the issue. In the case of Universal Plastics Ltd. v. CIT 237 ITR 454, the Hon'ble Supreme Court has held that the lease as a temporary means of exploiting the commercial asset would constitute business income. However, in the case of the assessee there is no end in sight to the lease agreement. The lease started in October, 2002 and is still continuing. It is also seen that in the next assessment year also the lease was in force. By no stretch of imagination, this can be a temporary means of exploiting the commercial assets. In view of these facts, the Ld. CIT(A) held that the AO has correctly taxed the income under other sources. With regard to the allowability of expenses incurred to earn the income, the Ld.DR submitted that the Ld.CIT(A) found that the AO had already allowed 75% and taxed only 25% of the lease rentals as its income. Even in computing the income from house property only a deduction of 30% of the income is allowed whereas in this case the AO has allowed deduction of 75%, which the Ld. CIT(A) has considered it as very fair and reasonable. Therefor....
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....85,532/-, depreciation on the plant and rice mill machinery Rs. 40,79,967/- comes to Rs. 53,20,470/- only. This leaves the balance of Rs. 14,95,530/- (68,16,000 - 53,20,470 ) which was allowed towards the employee cost and administrative expenses for the purpose of earning the lease rental income u/s 57(iii). In the absence of any material from the assessee to assail the findings recorded by both the lower authorities towards the quantum of employee cost and the administrative expenses as unreasonable, we uphold the lease rental income determined at Rs. 22,72,000/- and dismiss the corresponding grounds of the assessee. 11. The next issue is the rejection of books of account by the AO by invoking the provisions of section 145 and making the disallowance of expenses incurred for sale of by-products of bran and broken rice. It is submitted that the Ld. CIT(A) erred in upholding the rejection of books of account for mere deficiency of stock particulars and in this regard, the assessee relied on the decisions of the Gauhati High Court in the case of Madanani Construction Corporation Ltd 295 ITR 45 and the Calcutta High Court in the case of Ashoka Refineries P Ltd 279 ITR 457 etc. With ....
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....gard to the disallowance of expenses incurred for sale of by-products of bran and broken rice, the ld DR submitted that the CIT(A) found that the assessee wanted to claim a notional amount towards cost of bran & broken rice sold by it which was never paid by it to its sister concern. The lease rent fixed by the assessee to its sister concern at Rs. 2/* per kg. of rice would have been fixed after taking into consideration the expected realizations that the assessee would get by sale of bran & broken rice. Further, all the processing is done by the assessee's sister concern and the assessee does not carry out any activity, other than selling the by product and therefore no expenditure can be allowed towards the sale realization. Therefore, based on the facts on records, the Ld. CIT(A) held that no expenses can be allowed towards sale of bran & broken rice and the AO has rightly taxed the sale proceeds of bran & broken rice. Though, the assessee challenged these findings, yet it has not placed any material before this Hon'ble Tribunal in support of its contentions and hence the ld DR pleaded that the appeal may be dismissed. 13. We heard the rival submissions. The fact remains th....
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....able material from the assessee, appears totally unrealistic. Neither the assessee nor the revenue could assist us in determining the fair and reasonable income from this source. Since there is no cost involved on the purchase and processing of broken and bran to the assessee, however, the cost of sale and distribution is required to be considered, therefore we consider that in this line of business an assessee may at best incur about at 30 % for these purposes and on such basis determine 30% of the admitted receipts would be the reasonable expenditure that could be required for earning the impugned receipts and therefore direct the AO to allow 30% of Rs. 68,09,001 at Rs. 20,42,700/- towards reasonable expenditure which could be required for earning the impugned income from sale of broken and bran and accordingly determine the income from this source at Rs. 47,66,301/- as against Rs. 68,09,001/-. Thus, we allow the assessee's corresponding grounds of appeal to this extent. 14. In the result, the assessee's appeal for the assessment year 2006-07 is partly allowed. Assessee's Appeal in ITA No1874 /CHNY/2010, for the Assessment Year: 2007-08 : 15. While making the assessment for a....
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....ssing charges' but it left over the broken rice and bran, the AO has not accepted this explanation as the broken rice and bran were regularly leased to the lessor company in the previous years. He held that when the lease agreement executed on 03-10-2002 between the assessee and the sister concern is in force, no oral agreement is enforceable in law. Further, the lease agreement was also not cancelled. So, he required the assessee to furnish the details of receipts from processing of paddy & rice as disclosed in the earlier year and found the following income from different sources: Source March 2007 March 2006 Processing charges -- 90,88,000 Sale of Broken Rice 72,00,380 60,89,001 Sale of Bran -- 7,20,000 Rent 5,00,000 -- As the assessee company did not disclose the processing charges as an income, he estimated the fair and true income of the processing charges based on the prevailing market rates, that is, at the rates charged in the previous year. He held that the assessee has fairly done a better business than the last year as is evident from the sale of broken rice, the proceeds of which was at Rs. 72,03,180/-as against Rs. 60,89,000/- admitted in the....
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....h the business of the assessee and therefore, they are allowable as deduction U/s.37. 17. Per contra, the Ld.DR submitted that on perusal of the details furnished by the assessee the AO found that certain expenses which were claimed under various heads do not wholly relate to the functioning of the business. The expenditure is not incurred wholly and exclusively for the purpose of earning the business income. Therefore, the AO required the assessee to furnish the details of those expenditures. The assessee could not furnish any such details. Further, the AO found that on the line of the assessee's activities some of them are not required to be incurred also and hence disallowed all such expenses and restricted the expenditure under the head salary and wages. The assessee filed an appeal before the CIT(A) and before the Ld.CIT(A) also, the assessee could not furnish any material by which it could satisfy the Ld.CIT(A). Therefore, the Ld.CIT(A) held that the assessee has not processed any rice nor manufactured any product. The processing, if any, is done by its sister concern. The assessee has merely let out its assets and earned income therefrom. Therefore, these expenditures cann....
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....und from the audited accounts of PFPPL, that no sales of broken rice or bran has been shown. Therefore, the sale of bran has to be reflected in the books of the assessee. In the absence of full details, the Assessing Officer, based on the sale of bran for the previous year has added the amount of Rs. 8,51,750/- which in our opinion, is fair and reasonable. Since the AO on due examination rejected major expenditure claim of the assessee / restricted, as the case may be, under various heads during this assessment year, which we have upheld, supra, in view of that we consider that the estimated from this source is a net income. In view of the facts and circumstances, we hold that the corresponding grounds of the assessee are dismissed on this issue. Revenue's Appeal in ITA 1940/Chny/2010, for the Assessment Year 2007-08 19. The Revenue filed this appeal with the following grounds:- 1. The Order of the learned Commissioner of Income Tax(Appeals) is contrary to the Law and facts of the case. 2. The learned CIT(A) has erred in deleting the addition made by in respect of medical expenses of Rs. 67,069/-. 2.1 The CIT(A) ought to have appreciated that the above expenditure was disal....
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.... broken rice. The company has processed 45,44,000 cases of paddy I rice during the previous year 2005*06. Applying the 20% rate of paddy I rice processed last year, the same works out to 9,08,000/*. Thus, the total processing of cases is 54,52,800 (45,44,000 + 9,08,000). The processing charges as per the agreement is Rs. 21* per kg and the total processing charges comes to Rs. 1,09,05,600/-. As the proportionate expenditure has already been allowed, the processing charges amounting to Rs. 1,09,05,600/- is treated as income. " 11.1 At the time of appellate proceedings, the ld. AR vehemently argued against the above estimation of income which was never received by it and filed the following submission: "The document which creates an obligation to pay Rs. 2 per Kg by way of processing charges to the assessee by M/s. Peninsula Food Products (P) Limited is the lease agreement dt 3/10/2002. This document is not a registered document. Being an unregistered document the same has no evidentiary value in any court of law. In case any of the parties to the lease agreement does not acquit himself in consonance with the terms of the lease agreement the party who has sustained a loss cannot ....
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.... deletion. " I have carefully considered the facts of the case and the submission of the ld. AR. The Assessing Officer in this case has estimated the sales made by the sister concern and taxed the income that ought to have been received by the appellant. The income has been taxed on a notional basis. In my opinion, the AO cannot tax any income on a notional basis. The Id.AR was required to file the computation of income and audited accounts of the appellant and its sister concern M/s. Peninsula Food Products Pvt. Ltd (PFPP ). I have gone through the accounts of the appellant and the lessee sister concern. During the A.Y 2006*07, the lessee had paid to the appellant Rs. 90.88 lacs as "processing charges" which was added to the cost of sales. However, during this assessment year viz. 2007*08, M/s. Peninsula Food Products Pvt.Ltd. (PFPPL) has not claimed any amount as having been paid as processing charge. It is therefore, apparent that PFPPL had not claimed any expenditure on this count. Since the appellant has not received any amount, it has also not shown the same in its profit and loss account. The AO is therefore, in my considered view, not correct in adding any notional in....
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.... However, this year, it has not admitted the processing charges on the plea that it has not collected the processing charges as there was a heavy loss in Peninsula Food Products P Ltd., as it exported polished rice order on a fixed price and also due fluctuation in rice price, the sister concern could not pay the processing charges as agreed and further it was orally agreed between the two companies for the above transaction without payment of processing charges' and instead it left over the broken rice and bran. The AO has not accepted this explanation as the broken rice and bran were regularly leased to the lessor company in the previous years. He held that when the lease agreement executed on 03-10-2002 between the assessee and the sister concern is in force, no oral agreement is enforceable in law. Further, the lease agreement was also not cancelled and therefore, he estimated the income on relevant basis. The assessee disputed such addition. We find that the agreement is between the related parties and the assessee has not produced any material for establishing that there was an oral agreement for not paying the processing charges. We also find that the assessee has admitted s....