TaxTMI 
TaxTMI 
2020 (12) TMI 215
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....by consolidated order. With the consent of parties, the appeal for assessment year 2010- 11 was treated as lead case. The revenue has raised following grounds of appeal: (1) On the facts and circumstances of the case and a law, the learned CIT(A) erred in deleting the addition made on account of Social Forestry Expenses Rs. 8799425/- and Amortization of social forestry expenses Rs. 487257/-in spite of the fact that the activities classified as social forestry were agricultural operations at the same was not available under section 10(1) of the IT act and the assessee failed to prove otherwise. (2) On the facts and circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition of Rs. 5,15,000/-made on account of unexplained creditors as the assessee failed to prove the genuineness of transaction with the creditors. (3) Whether on the facts and circumstances of the case, learned CIT(A) is right in deleting the addition on account of Excess process stock of Rs. 11,90,980/-. (4) Whether on the facts and circumstances of the case, the learned CIT(A) is right and the directing the AO to exclude the expenses of Orisha uni....
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....ng officer may be restored to the above extent. 2. Brief facts of the case are that assessee is a Public Limited Company engaged in manufacture of Paper, Pulp and generation and distribution of power. The assessee filed its return of income for relevant assessment year on 29th September 2011 declaring total income at Rs. 32,42,11,133/- and book profit under section 115 JB of Rs. 132,48,05,932/-. The return was selected for the scrutiny. The assessment was completed under section 143 (3) on 21st December 2012. The assessing officer while passing the assessment order made various addition/ disallowances as recorded on page 35 of the assessment order : Additions/ disallowances Amounts (Rs.) 1 The slums of expenses claimed on account of Social Forestry expenses and appreciation on assets used for social forestry 87,99,425/- 2 Disallowance of claim of expenses against liability written back 2,10,538/- 3 Addition on account of adjustment under section 145A 23,49,858/- 4 Addition on account of unexplained sundry creditors 5,15,500/- 5 Addition on account of excess process stock. 11,90,980/- 6 Disallowance under section ....
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....ief vide order dated 04.09.2009. By following the order for AY 2002-03 to 2004-05, the assessee was further allowed relief by Tribunal in AY 2009-10 vide order dated 31.07.2013. In the year under consideration the ld. CIT (A) granting relief to the assessee by following the order of Tribunal in AY 2009-10. The ld. DR for the revenue submits that though this ground of appeal is covered by the decision of Tribunal in earlier years, yet, he is supporting the order of the assessing officer as the revenue has already filed appeal before Gujarat High Court and challenged the orders of Tribunal. The ld. DR for the revenue prays to restore the additions made by assessing officer. 6. On the other hand the ld. AR for the assessee submits that the assessee is engaged in the business of manufacturing and sales of Paper and Board. Bamboo and hardwood are the major raw materials required for the manufacturing these product. In order to ensure regular supply of raw material, the assessee took various steps to ensure adequate supply of raw material. The assessee provided seeds to the farmer, supply of high-quality sapling developed and grown by assessee on the basis of in-house research and ....
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.... 2. The facts of the case as emerged from the corresponding Assessment orders passed u/s. 143(3), dated 23.12.2011 were that the assessee company is engaged in the business of manufacturing and trading of Pulp and Board. The company has two paper mills. In respect of ground no.1, it was noted by the AO that the assessee had incurred an expenditure on Social Forestry at Rs. 85,43,140/-. The assessee has claimed the deduction of the said expenditure. The explanation of the assessee was that since the assessee is manufacturing Pulp & Board, therefore, the bamboo and the hardwood are the major raw material required for the manufacturing. However, the AO was not convinced and following the past history of the case, the said expenditure was disallowed. When the matter was carried before the First Appellate Authority, learned CIT(A) has followed an order of the Tribunal and thereafter directed the AO to rework the disallowance in accordance with the directions laid down by the Tribunal. With these brief background, we have been informed that on identical facts ITAT 'C' Bench Ahmedabad for A.Y. 2008-09 in an appeal of the assessee bearing ITA No.2262/Ahd/2011 and Cross Appeal be....
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..... The learned DR for the revenue supported the order of assessing officer. The learned DR for the revenue further submits that during the assessment the assessee was asked to furnish the confirmation in respect of various creditors. The assessee failed to file the confirmation for verification and the genuineness of transaction. Since the assessee failed to explain the creditors of standing for more than 3 years with supporting evidence the assessing officer added the same to the income of assessee. 10. On the other hand the learned AR of the assessee submits that this ground of appeal is also covered in favour of assessee by the decision of Tribunal for assessment year 2009-10. The learned AR submits that decision of Tribunal for assessment year 2009-10 dated 31st July and for assessment year 2005-06 dated 4th February 2011 is placed on record. In both the years the assessing officer made addition by taking similar view that outstanding balance was for more than 3 years and that the assessee failed to furnish any confirmation. The learned CIT (A) the deleted additions by following the order of earlier year and taking view that creditors are old in respect of which the purchases....
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....(1) of the Income tax Act, 1961, we find that as per Explanation (1) inserted in Section 41(1) by the Finance (No.2) Act 1996 w.e.f. 01.04.1997, if the assessee has written back the liability then it will amount to remission or cessation of liability for the purpose of invoking Section 41(1). As per the judgment of Hon'ble Apex Court rendered in the case of Sugauli Sugar Works as reported in 236 ITR 518 (S.C.) and in the case of Kesaria Tea Co. Ltd. reported in 254 ITR 434 (S.C.), even a unilateral entry passed by the assessee by writing back the liability will not amount to cessation of liability. However, after the amendment of Section 41(1) by way of insertion of Explanation to this extent, these two judgments of Hon'ble Apex Court will not be applicable where the assessee has written back the liability but where assessee has not written back the liability in the books, Section 41(1) cannot be invoked as per those judgment of Hon'ble Apex Court even after the insertion of Explanation (1) in Section 41(1). These two judgments of Hon'ble Apex Court will not be applicable where the assessee has written back the liability but where assessee has not written b....
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....ement. Therefore the assessing officer was in making addition. The learned DR for revenue prayed for restoring the order of assessing officer by reversing the order passed by learned CIT(A). 14. On the other hand the learned AR of the assessee submits that this ground of appeal is also covered in favour of assessee by the decision of Tribunal for assessment year 2005-05. The learned AR submits that decision of Tribunal for assessment year 2004-06 dated 4th September 2009 is placed on record. The learned AR for the assessee further submits that there is no dispute that assessee is maintaining books of account on day to day production bases. The assessee has taken actual physical stock for the purpose of declaring closing stock in the books of account. The purchase and sales are supported by vouchers and there is no point whatsoever of any suppression of sales or purchases. The valuation of stock to the bank is absolutely on estimated bases without any actual physical verification and the same was not supported by books of account and the determining the value of a stock also the average cost of the preceding month is considered. The learned CIT(A) granted relief to the assesse....
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....der section 80IA. The ld. DR for the revenue submits that during the financial year under consideration the assessee claimed deduction under section 80IA of Rs. 18,91,35,828/- being first year of the claim in respect of power generation unit TG-3. The assessee was asked to furnish the details of expenses regarding electricity generation unit. In response to the show cause the assessee submitted income and expenditure account, balance sheet and other details in respect of power generation unit TG-3 as a part and parcel of its audit report. On perusal of income and expenditure account, the assessing officer noted that assessee has not bifurcated expense in respect of the power generation unit and the paper and board manufacturing unit. It was further noted that expenses claimed in power plant unit in its 'head of employee' and 'other expenses' were not justifiable. The assessing officer further asked the assessee to clarify whether expenses claimed in these two heads were divided into same ratio between the power plant unit and the other units or not. The assessing officer by taking view that power generation does not require much manpower and that assessee has not maintained proper ....
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.... Directors. The learned DR for the revenue supported the order of assessing officer. The learned DR further submitted that during the course of assessment proceeding the assessing officer noted that assessee has debited Rs. 52,56,000/- under the head Directors commission. The assessee was asked to provide details regarding the service provided by the Directors, genuineness of the services provided them, how it was beneficial to the assessee, the rate at which such commission was paid and the list of parties with complete postal address from own purchases/sales made through these Directors. In response to the show cause notice the assessee submitted that commission is given after passing a resolution in the Board's meeting. The commission was paid at the maximum rate of 1% of profit. The reply of assessee was not find favorable to the assessing officer. The assessing officer was of the view that passing of resolution by board is not sufficient to prove the genuineness of the commission paid to the Directors other than the Managing or whole time Directors of the assessee. Since the assessee failed to submit any documentary evidence to prove that commission was paid to the Di....
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.... paid. The assessee submitted its reply which was not find favorable by the assessing officer. The assessee failed to produce copy of any agreement with the commission agent to whom the commission was paid and the nature of services rendered by them. The assessee only produced the list of parties to whom commission was paid and TDS was deducted. The assessee given commission on oral understanding. The assessing officer reasonably disallowed 10% of such commission. The learned DR for the revenue prayed for restoring the order of assessing officer and to reverse the order of CIT(A). 24. On the other hand the learned AR of the assessee supported the order of CIT(A). The learned AR further submits that the assessing officer wrongly disallowed the expenses without appreciating the nature of business and quantum of commission as compared to sales. It was submitted that due to high competition in the market, in order to achieve the sale target the assessee was required to pay higher incentive to its dealer. The similar commission was paid and claimed in earlier years, wherein no such disallowance was made by assessing officer. The ld. AR prayed for dismissal of the ground. 25. We ha....
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....essing officer was not justified in making ad-hock disallowance @ 5% of the total expenses. 28. We have considered the submission of both the parties peruse the order of lower authorities. We have noted that the assessing officer is not examined the genuineness of the expenses. The assessing officer has not brought any adverse evidence against the expenses incurred by the assessee. The assessing officer has not doubted that the expenses are not genuine. And without specifying any reason made disallowance @ 5% of the total expenses. The assessing officer simply concluded that the arguments of the assessee company are considered in but the same are not acceptable without specifying any reason. The learned CIT(A) while granting relief to the assessee noted that assessing officer has not even try to deal with the expenses under different head and merely made ad-hock disallowance which is not sustainable. We have noted that like other ad-hock disallowances which were ultimately deleted by learned CIT(A), no contrary fact or evidence is brought to our notice to take other view. Therefore we affirm the order of learned CIT (A). In the result this ground of appeal is also failed. ....
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....own to take other view except to raise the plea that the disallowances were made on reasonable basis. Therefore, we do not find any infirmity in the order passed by learned CIT(A), which we affirm. In the result this ground of appeal is also failed. 32. Ground No. 10 relates to deleting the disallowances of Rs. 12,28,77,984/- made on account of adjustment of MAT credit entitlement while computing book profit. The ld DR for the revenue submits that ld CIT(A) granted relief to the assessee by following the order of Tribunal for AY 200-03 to 2004- 05. The decision of the Tribunal has been challenged by the department before Gujarat High Court and the final outcome is pending. 33. On the other hand the ld AR for the assessee supported the order of ld CIT(A). The ld AR further submits that this ground of appeal is also covered by the decision of Tribunal in assessee's own case for AY 2002-03 to 2004-05 dated 04th September 2009 and AY 2006-07 dated 18.10.2016. 34. We have considered the rival submissions of the parties and perused the order of the lower authorities. The assessing officer made adjustment by taking view that there is no provision for any adjustment in respect of MAT....
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....ppeal. In the result this ground of appeal is also dismissed. 39. In the result the appeal of the revenue for AY 2010-11 is dismissed. ITA No. 2905/Ahd/2014 for AY 2011-12 by revenue and 40. As recorded in para -1 of this order the revenue has raised identical grounds of appeal in AY 2011-12 as raised in appeal for AY 2010-11, except variation of figures of addition/ disallowance. The brief grounds of appeal raised in AY 2010-11 and 2011-12 are mentioned in a chart below: Sr. No. Brief nature of Grounds of appeal AY 2010-11 AY-2011-12 1 Social Forestry Expenses 1 1 2 Un-explained Creditors 2 2 3 Process stock declared to bank 3 3 4 Deduction u/s 80IA- allocation of expenses 4 -- 5 Directors Commission Ad-hock disallowance 6 4 6 Sales Commission Ad-hock disallowance 7 5 7 Misc Expenses Ad-hock disallowance 8 6 8 Employee Expenses and welfare Ad-hock disallowances 9 7 9 MAT credit to P&L Account 10 -- 10 Amortization of expenses 11 -- 11 Section 14A disallowance added to Book profit u/s 115JB 11 8 41. Considering the facts that....
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....by revenue relates to deleting the disallowance made under section 40 (a)(i). The learned DR for the revenue supported the order of assessing officer the learned AR further submits that the nature of payment is agency commission paid to a non-resident, the assessee was liable to deduct TDS on the said payments. 48. On the other hand the learned AR of the assessee supported the order of CIT(A). The ld AR submits that learned CIT(A) allowed relief to the assessee by following the decision of honorable Supreme Court in case of CIT versus Toshoku Limited (125 ITR 525 SC). The learned AR for the assessee submits that the recipient has no business connection in India and not liable to tax in India, therefore the assessee was not liable to make TDS on such commission payment. 49. We have considered the rival contention of both the parties and perused the order of lower authorities. During the assessment of the assessing officer noted that assessee made foreign remittance of Rs. 7,100,00/- to non-resident on account of export commission, on which no tax was deducted at source as required under section 195 of the Act. The assessee was issued show cause notice as to why a disallowance ....
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....of the assessee company, therefore, the entire expenses was for the purpose of business. The assessing officer made disallowance of Rs. 12,63,976/- out of total club expenses of Rs. 16.85 lakhs. Therefore, disallowed 75% of the total expenses. The learned CIT(A) granted partial relief to the assessee. The assessee is entitled for full allowance on account of expenses incurred on club membership fees. In support of his submission the learned of the assessee relied upon the decision of Gujarat High Court in Gujarat State Export Vs CIT (209 ITR 649 Guj ) and Tribunal in ACIT Vs Eastern Silk Milk Industries Ltd (2019) 109 taxmann.com 204 (Kolkata Trib). 52. We have considered the rival submission about the parties and perused the order of lower authorities carefully. The assessee claimed club expenses of Rs. 16.85 lakhs. The assessing officer allowed 25% of the expenses on a top basis. The learned CIT sustained the disallowance of Rs. 5 lakhs by taking view that possibility of using of these facilities being used exclusively for personal purpose of Directors and their friends could not be ruled out. 53. The Hon'ble Bombay High Court in Otis Elevator Co. Ltd. (1992) 60 T....
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.... 195 of the Act. The assessing officer issued show cause notice as to why the disallowance under section 40a(i) be made on account of non-deduction of tax at source on the payments made to non-resident. The assessing officer after considering the submissions of the assessee disallowed the entire expenses under section 40a(i). The ld CIT(A) affirmed the action of assessing officer by taking view that no details about the payment was furnished and thus veracity of claim cannot be verified. The ld CIT(A) also concluded that rendering any technical or managerial services attracts the provisions of section 195 of the Act. The other submissions of the assessee that the recipient has no business connection in India was also not accepted by ld CIT(A) by taking view that whether there is business connection or not, any income by way of fee for technical services (FTS) is covered by section 9(1)(vii) of the Act. 58. Before us, the ld. AR for the assessee vehemently relied on the decisions of Tribunal in ITO Vs Veeda Clinical Research (P) Ltd (supra) wherein it was held that the law is settled so far as the connotations of 'make available' clause in the definition of fees for te....