TaxTMI 
TaxTMI 
2019 (11) TMI 638
X X X X Extracts X X X X
X X X X Extracts X X X X
....other hand, interest of Rs. 10.08.778 - has been paid. iii. The C1T(A) has erred in deleting the addition of Rs. 34.79,124/- made by the AO on account of disallowance of damages u/s 37 without appreciating the fact that damages in the form of penalty itself is not an allowable deduction as per explanation to section 37(1) of the income tax Act. 1961. iv. The appellant craves leave to add. alter or amend any/ all the grounds of appeal before or during the course of hearing of appeal." 3. Assessee is a manufacturer of domestic, industrial, electrical and telecommunication wires and cables. During the year under consideration, gross income from business has been shown at Rs. 52,38,836.00. The assessee has set off brought forward losses of assessment year 2004-05 and 2005-06 and resultantly Income Tax Return was filed as Nil income. A survey u/s 133A was carried out on 03.02.2010. Stock of the firm was valued by the assessee approximately at Rs. 1,20,00,000/- . The same stock was valued by the Survey team at Rs. 1,70,02,024/- the difference in the two valuations was considered by the survey team as alleged excess stock amounting to Rs. 50,02,024/-. Excess stock was....
X X X X Extracts X X X X
X X X X Extracts X X X X
....3.58 instead of Rs. 90,92,187.00. The amount given to the sister concern was mainly out of the payment received from Railways a customer of the assessee. Liquated damages of Rs. 28,00,410.00 are amount deducted by Railway on late deliveries. Deduction for risk purchase Rs. 6,78,714.00 was stated by railway, assessee's major buyer is done on prices determined in the tenders and railways make payments as per terms of tender. Tenders include terms and conditions of deduction any liable to be made from the invoices of vendor. Rent for Okhla factory was Rs. 2,25,000.00 per annum TDS of Rs. 45,000.00 was deducted on rent u/s 194I and paid into the Government treasury on 04.03.2010. Books of accounts with voucher and stock register etc. were produced for examination of the assessing officer on 27.12.2010. The Assessing Officer made / assessed income of Rs. 2,60,87,240.00. 4. Being aggrieved by the assessment order the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee. 5. The Ld DR submitted that as regards as ground no. 1 the CIT(A) has erred in deleting the addition of Rs. 2,60,87,240.00 made by the assessing officer without appreciating ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... cores increases per unit consumption of input increases. In other words, as the no. of cores increases the production in meters will decrease with same quantity of input. To arrive at correct figure of production, total length of multiple core cables shall be converted to single core cable. The Ld. AR further submitted that in simple words a six core cable is nearly equal to six single core cables. The assessee demonstrated the conversion of 5 variety of multiple core wire, which constitute 91% of total production by the assessee, into single core wires which shows that production in meters per unit of electricity consumed has increased in the subject year through a table before the Assessing Officer. The assessee also showed the comparative chart in respect of production of multiple core cable has increased in the subject year as compared to previous years and also demonstrated total production of wires in meters, if the same is converted to single core wires further substantiating assessee's claim that per unit production has increased in subject year to the Assessing Officer. The Ld. AR further submitted that the assessee manufactures various types of cables such as building ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d no discrepancy was found by the Assessing Officer in books of accounts. Therefore, rejecting the books of accounts of assessee by the Assessing Officer is bad on facts and in Law and the additions made consequent to such rejection of books shall also be quashed. The additions made by the Assessing Officer are solely based on surmises and conjectures as the Assessing Officer failed to produce any evidence to substantiate his contention of undisclosed stock/ production. Neither has the Assessing Officer brought on record any tangible material to support his conclusion nor has he pointed out any comparable company in the same line of business and having similar products as that of the assessee and has consistent output (in meters) per unit of power consumption. The same fact has been upheld by the CIT(A). The Ld. AR submitted that it is settled law that in the matter of an assessment, presumption however strong cannot take the place of proof. The Ld. AR relied upon judgment of Hon'ble Apex Court in the case of Uma Charan Shaw & Bros. Co. vs. CIT reported in 37 ITR 271. Thus, considering the fact that the Assessing Officer failed to discharge his onus, the additions made by the Asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 1.6 The appellant has strongly contested the addition being made merely on surmise, guesswork and conjecture. 1.7 I find force in the submissions and contentions of the appellant and in view of the facts and circumstances and legal position, the addition for suppresses production / sales outside the books of accounts Rs. 2,60,87,740.00 is deleted. Ground No. 1 to 3 raised in appeal are allowed." From the perusal of the records, it can be seen that no physical discrepancy was found/ detected by the survey team and excess value of stock was merely because of difference in valuation of closing stock. Survey team took the valuation applying MRP- GP% whereas as per assessee, since as per normal trade practice sales are generally made after giving discounts @ 30% to 60%, stock was valued at MRP-Discounts-GP%. This discrepancy in valuation method was duly elucidated before the Assessing Officer vide submission dated 25.02.2013 by the Assessee. The statement showing valuation of closing stock at actual sale price supported by relevant invoices to prove assessee's claim of overvaluation of stock by the survey team. It is undisputed fact that per unit consumption of input....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y deposits available with the assessee amounting to Rs. 2.64crores (1.34+1.30). Therefore, when there is no expenditure of interest in respect of interest free funds of Rs. 2.64 crores which are more than the amount advanced, there is no justification for charging interest and that too @ 12% on the sum of Rs. 77 lakhs. It has been held in the following judicial decisions that if own funds are more than the advance made for non-business purpose, no disallowance can be made: a) Jaguar Intl. Ltd. vs. ITO ITA No. 4371/2016 date of order 27.04.2017 b) CIT vs. Sharada Erectors (P) Ltd. (2016) 76 taxmann.com 107 (Bom) c) CIT vs. Reliance Utilities & Power Ltd. (2009) 313 ITR 340 (Bom) d) CIT vs. Gautam Motors (2011) 334 ITR 326 e) CIT vs. Tin Box Co. (2003) 260 ITR 637 (Del) f) CIT vs. Radico Khaitan Ltd. (2005) 274 ITR 354 (All) g) Swagat Infrastructure Ltd. vs. JCIT (2013) 37 taxmann.com 83 (Ahmd. - Tri.) h) Venus Records & Tapes (P) Ltd. vs. Add. CIT (2013) 33 taxmann.com 49 (Mum. Tri.) The Ld. AR further submitted that the assessee is having CC limit with only Union Bank of India during impugned assessment year....
X X X X Extracts X X X X
X X X X Extracts X X X X
....for the same, how it can advance 77 lakh to M/s N. C. Cables Ltd. Thus, in view of above, addition made by the Assessing Officer is bad in law which has been correctly deleted by the CIT (A). Therefore, relief given by the CIT(A) has to be sustained. 10. We have heard both the parties and perused all the relevant material available on record. The CIT(A) held as under: 2. Ground No. 4: 2.1 I have considered the ground raised in appeal and the facts of the case. I have also considered the submission filed by the AR of the appellant. 2.2 The appellant has raised ground against the addition of Rs. 924,000/- under the head interest u/s 36/37 of the I.T. Act. 2.3 Without going into details of the Assessing Officer and appellant, the moot point of notation is in the appellant's submissions mentioned above, that as per the statement of accounts of M/s N.C. Cable Ltd., in the books of the appellant, the balance as on 31.03.2010 is a debit balance Rs. 34,79,169.00 and not Rs. 77,00,000.00. As per the appellant, the Assessing Officer has considered only the debit entries and ignored the credit entries in the account. The appellant has placed on records a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e allowed as revenue expenditure. Since, the said payment/deduction was not towards any offence or infringement of law therefore the same cannot be disallowed. It has been held in the following judicial decisions that any penalty so termed as penalty for contractual breach is not penalty for infraction of law and therefore, cannot be disallowed on that scope: a) Nice Projects Pvt. Ltd. vs. Dept. of Income Tax ITA No. 3950/Del/2013 order dated 19.04.2016 b) Western Coalfields Ltd. vs. ACIT (2009) 124 TTJ 669 (Nag.) c) Master Capital Services Ltd. vs. DCIT (2008) 108 TTJ 389 d) CIT vs. Industrial Cables India Ltd. 162 Taxman 423 (P&H HC) e) Agarwal Road Lines P. Ltd. vs. DCIT 129 TTJ 49 f) Vishwanath V. Kale vs. ITO ITA 2081/2010 (Mum) g) Prakash Cotton Mills Pvt. Ltd. vs. CIT (1993) 201 ITR 684 (SC) h) ACIT vs. Taurian Iron and Steel Co. Pvt. Ltd. (ITA No. 1613/Mum/2010) i) ITO vs. VRM Share Broking (P) Ltd. (2009) 27 SOT 469 (Mum) Thus, Explanation to section 37(1) is to be invoked only in those circumstances when there is really a breach of any law like penalty imposed under State VAT Act for non-f....