TaxTMI 
TaxTMI 
2015 (11) TMI 1849
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.... add or amend any ground/grounds of appeal before the appeal is heard or disposed off. 5. It is prayed that the order of the Ld. CIT(A) be cancelled and that of the assessing officer may be restored." 3. The ground No.1 relates to addition of Rs. 24,63,106/- made by the Assessing Officer under section 40A(2)(b) of the Income Tax Act, 1961 (in short 'the Act'). 4. Briefly, the facts of the case are that out of the total interest on loan, the assessee had paid interest of Rs. 1,23,15,529/- on unsecured loans to persons covered under section 40A(2)(b) of the Act. The rate of interest paid was @ 15% per annum. When the Assessing Officer asked the assessee to justify the reasonableness of interest payment @ 15%, it was submitted that the interest paid to the banks on borrowings was @ 10.5%, when the bank loans were against charge on the property and the opportunity cost on these loans was much more than 15%. It was also submitted that the loans were continuing from earlier years and were instantly available. The Assessing Officer did not find himself in agreement with the submissions of the assessee and restricting the claim of interest to a rate of 12%, made a disallowance of Rs. 2....
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....balance in the name of M/s Khandelia Udyog Pvt. Ltd., a sister concern of the assessee. Relying on the judgment of the Hon'ble Punjab & Haryana High Court in the case of CIT Vs. M/s Abhishek Industries Ltd., 286 ITR 1 (P&H), the Assessing Officer disallowed proportionate interest @ 12% on the debit balance of various branches of M/s Khandelia Udyog Pvt. Ltd. Further, the Assessing Officer noticed that there was a debit balance outstanding in the name of M/s Gauri Shanker & Co., Chandigarh. It was noted that sales had been made to the sister concern during the year but the recovery had not been made in timely manner and debit balance was outstanding throughout the year. In this way, he proportionally disallowed the interest @ 12% on the debit balance of M/s Gauri Shanker & Co. also. 10. Before the learned CIT (Appeals), the submission of the assessee was that these transactions are all in the course of business considering the commercial expediency. The assessee company has made sales and purchases from these concerns. Further the assessee had enough own funds to lend to these concerns and has not used any borrowed funds for this purpose. It was also submitted before the learne....
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....s. In reply, the assessee stated that the sister concerns M/s Gauri Shankar & Co. and also Khandelia Udyog Pvt. Ltd. were returning their income in the highest tax rate slab. Therefore, there was no need for assessee to make sales to them at lower rates. Further, it was argued that these concerns were given trade discounts, therefore, provisions of section 40A(2) of the Act are not applicable to the same. Reliance was placed on the order of the Chandigarh Bench of I.T.A.T. in assessee's case for assessment year 2006-07. The Assessing Officer made a detailed analysis, whereby the sales made to sister concerns and independent parties were compared and examined bill-wise. A few examples as confronted to the assessee are also reproduced in para 5.3 of his order. Rejecting all other contention of the assessee, average percentage was calculated on the basis of samples bills as confronted to the assessee and it was concluded that average suppression in the sales volume is to the tune of 4.34%. Since the assessee had made sale amounting to Rs. 71,32,69,682/-, an amount of Rs. 3,09,55,904/- was added to the income, being 4.34% of Rs. 71,32,69,682/-. 15. Before the learned CIT (Appeals), re....
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....o the sister concerns at lower rates. It may also be noted here that the Assessing Officer, while calculating the so called suppressed sales, has taken into account the sales made to M/s Gauri Shanker 86 Co., which is an independent and unrelated entity. It may be clarified that while the addition for inflated purchases in respect of purchases made from sister concerns could be made u/s 40A(2)(a), but there is no corresponding provision in respect of sales made to sister concerns. The department cannot compel a person to make profit out of every transaction since the department does not have any authority to ask a person to maximize its profits. If the assessee chooses to give discount to someone, he is free to do it. The only criteria /condition is that the transaction (sale) should not result in loss. This principle was enumerated by the Hon'ble Supreme Court in the case of M/s Calcutta Discount Company Ltd. (91 ITR 8), in which Their Lordships have held that when a trader transfers his goods to another trader at a price which is less than the market price, so long as the transaction is bonafide, the revenue authorities cannot consider the market price ignoring the real price....
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....s erred in making disallowance of Rs. 18,72,420 out of the commission expenses u/s 37(1) as having not been incurred wholly and exclusively for the purposes of business. The disallowance be deleted. 5. The assessee craves permission to add or amend the above grounds at the time of hearing." 23. The ground No.1 relates to disallowance of Rs. 1,58,424/- made by the Assessing Officer invoking the provision of section 14A of the Act. 24. Briefly, the facts are that during the year, the assessee made investments of Rs. 66,62,696 in shares and mutual funds. On a query raised by the Assessing Officer, the assessee submitted that during the year it has earned exempt income amounting to Rs. 6,614/- only and it had incurred expenditure in relation to exempt income amounting to Rs. 24,288/- only. However, the Assessing Officer rejecting the contention of the assessee, invoking the provisions of Rule 8-D of Income Tax Rules made disallowance of an amount of Rs. 1,58,424/-. The learned CIT (Appeals) confirmed the disallowance so made by the Assessing Officer, after considering the detailed submission made by the assessee. 25. The learned counsel for the assessee during the course of hearin....
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....ated 27.7.2015, whereby it has been held in very clear terms that in case of availability of mixed funds presumption to the effect that investments are made out of owned funds has to be taken, as the money has not colour. Moreover in the present case, the learned counsel for the assessee has been able to demonstrate that at the time of making investments, the assessee was having huge amount of owned funds. In view of this, the Assessing Officer cannot make disallowance of interest for the purposes of section 14A of the Act as per Rule 8D. As regards the expenditure part of the disallowance, we agree with the submission of the assessee that nowhere in his order the Assessing Officer has recorded any satisfaction directly or indirectly to the effect why the amount of expenditure incurred for earning exempt income as stated by assessee is not correct. As per the proposition laid down by the Hon'ble Punjab & Haryana High Court in the case of Deepak Mittal (supra), in the absence of such satisfaction, no disallowance of expenses can be made under section 14A of the Act as per Rule 8D. The ground of appeal raised by the assessee is allowed. 28. The learned counsel for the assessee p....
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....in the discrepancy as in the valuation of stock by the assessee and that of the Assessing Officer, he filed a detailed chart of each and every item of raw material and finished goods purchased by it. It was stated before us hat the assessee has been adopting the same method of valuing the stock consistently in the last many years and there is no law, which provides to value the stock mandatorily as per FIFO method. Further, the observation of the learned CIT (Appeals) that the assessee had not been able to controvert the variation in mustard seed @ Rs. 2472 per qtl. taken by the Assessing Officer as against Rs. 2638/- per qtl. taken by the assessee. It was submitted that the Assessing Officer himself mentioned that the stock should be valued as per FIFO method, while he has taken the average of the rates of last three bills and concluded the undervaluation. Further, certain pages of the Paper Book were referred to show that the expenses have been properly loaded in the valuation of closing stock. In this way, it was prayed that there being no error in the method followed by the assessee to value the closing stock, the addition made by the Assessing Officer be deleted. 33. The lear....
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....,420/- 37. The Assessing Officer observed that the persons mentioned at Sr.No.(ii) and (iii) are also covered under section 40A(2)(b) of the Act. The assessee could not find any details of services rendered by these persons. Further, it was also observed by the Assessing Officer that since the assessee has not made any substantial sale in Delhi, the payment of commission to Shri Anil Rastogi was not justified. In this way, he disallowed the total amount of Rs. 18,72,420/- being commission expenses claimed by the assessee. 38. Before the learned CIT (Appeals), it was clarified that the payment of commission to Shri Anil Rastogi was on account of sale made in the territory of West Bengal, the address of Shri Anil Rastogi may be of Delhi. The confirmations from the commission agents were also filed before the learned CIT (Appeals). However, the learned CIT (Appeals) did not filed himself in agreement with the assessee. Stating that the confirmations were additional evidences and since the assessee has not given any plausible reason for not filing the same during the course of assessment proceedings, he confirmed the disallowance. 39. The learned counsel for the assessee prayed befo....