TaxTMI 
TaxTMI 
TaxTMI 
2022 (1) TMI 649
X X X X Extracts X X X X
X X X X Extracts X X X X
....red in law and on facts by restricting the disallowance of Rs. 3,48,64,200/- in respect of provision of batteries to Rs. 59,16,200/- without properly appreciating the facts of the case." This ground is inter-connected with ground no.1 of the assessee's appeal i.e. ITA No.1900/Ahd/2016. 4. The ld.Assessing Officer has made a disallowance of Rs. 3,48,64,200/- in respect of provision for batteries. Out of this disallowance, the ld.CIT(A) has restricted disallowance to the extent of Rs. 56,16,000/- and rest has been deleted. The Revenue is in appeal against deletion of disallowance; whereas the assessee in its appeal is challenging confirmation of disallowance to the extent of Rs. 59,16,000/- . 5. Brief facts of the case are that, the assessee firm at the relevant time was engaged in the business of installation of computer and providing after-sale services; sale of computers and peripheral and collection from Government department on behalf of suppliers of computers. It has filed its return of income electronically on 30.9.2012 declaring total income at Rs. 4,13,53,274/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) was issued on 7.8....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. In the first fold of submissions, it was contended that provision made by it was in consonance with Accounting Standard 29 issued by the Institute of Chartered Accountants of India. It has made this provision on the basis of contractual liabilities, and this provision has been made in a scientific manner. The assessee relied upon the latest judgment of Hon'ble Supreme Court in the case of Rotork Control India P.Ltd. Vs. CIT,314 ITR 62 (SC). In its next fold of submissions, it was contended that in the Asstt.Year 2010-11, similar provision was made. The ld.AO has disallowed claim of the assessee. The assessee took the matter before the ld.CIT(A) who partially allowed the claim. Assessee and Revenue approached the Tribunal, who set aside issue to the file of the AO for verification. 9. The ld.AO on re-verification has allowed claim of the assessee vide assessment order dated 31.3.2016 passed under section 143(3) r.w.s. section 254 of the Act. The ld.CIT(A) has considered these three fold of submissions, and was satisfied with the explanation of the assessee. The ld.CIT(A) has reproduced clause of agreement under which the assessee was required to replace batteries. The ld.CIT(A) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s at end of the project is mandatory. Vendor has to maintain record serial Nos. of replacement battery/UPS/Stabilizer 13. Before adverting to the proposition laid down by the Hon'ble Supreme Court in the case of Rotork Control India P.Ltd. Vs. CIT (supra), we would make reference to the stand of AO in the case of the assessee in the Asstt.Year 2010-11. In this assessment year, the assessee made provision for battery replacement. The addition of Rs. 1,43,99,000/- was made. The assessee took this issue to the ld.CIT(A) who confirmed addition to the extent of Rs. 1,03,61,067/-. Dissatisfied with order of the ld.CIT(A), the assessee carried the matter in appeal before the Tribunal in ITA No.2484/Ahd/2013 and 2714/Ahd/2013. In other words, cross appeals were filed before the Tribunal. These appeals have been decided vide order dated 28.2.2014. The Tribunal has remitted the issue back to the file of the AO for fresh examination. The AO re-verified all these aspects, and found, as a matter of fact, that the provision made by the assessee in F.Y.2009-10 i.e. the Asstt.Year 2010-11 was utilized by Asstt.Year 2014-15 i.e. in the F.Y.2013-14. The total amount was used by the assessee except ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n be measured only by using a substantial degree of estimation. A provision is recognized when (a) an enterprise has a present obligation as a result of a past event; (b) it is probable that an outflow of resources will be required to settle the obligation, and 9c) a reliable estimate can be made of the amount of the obligation. If these conditions are not met, no provision can be recognized. The word 'liability' is defined as "a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits. A past event that leads to a present obligation is called as an obligating event. The obligating event is an event that creates an obligation which results in an outflow of resources. It is only those obligations arising from past events existing independently of the future conduct of the business of the enterprise that is recognized as provision. For a liability to qualify for recognition there must be not only present obligation but also the probability of an outflow of resources to settle that obligation. Where there are a number of obligations (e.g. product warra....
X X X X Extracts X X X X
X X X X Extracts X X X X
....chses, as is shown by the assessee in the regular books. In the assessment order, the AO has recorded that the assessee has shown GP at 14.35% of the turnover, and net profit at 2.38% i.e. Rs. 3,73,155/-. The case of the assessee is that this net profit rate of 2.38% should be applied for making disallowance against those alleged bogus purchases. In other words, case of the assessee is that a disallowance be worked out at Rs. 3,73,155/- i.e. 2.38% of alleged bogus purchase of Rs. 1,56,78,802/- . 16. We have looked into all these details. Before the ld.CIT(A), assessee has produced decision of Hon'ble Gujarat High Court in the case of CIT Vs. Gujarat Ambuja Exports Ltd., Tax Appeal No.840 of 2013, and also relied upon in the case of Mayank Diamonds P.Ltd., Tax Appeal No.200 of 2003. It further relied upon decision of ITAT, Ahmedabad Bench in the case of ACIT Vs. Lulubi Steel in ITA No.1568/Ahd/2008. In the case of Gujarat Ambuja (supra), the AO disallowed 25% of the bogus purchase, which has been reduced to 5% at the level of ITAT. This decision of the ITAT was challenged before the Hon'ble Gujarat High Court, the Hon'ble Court did not interfere in the finding of the Tribunal. Simi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r-connected with each other. The dispue in these grounds of appeals relate to determination of the amounts require to be disallowed out of sale promotion expenses. 18. We take facts first from the Asstt.Year 2012-13. In this assessment year, the assessee has debited a sum of Rs. 1,29,93,438/- towards sales promotion expenses, and claimed the same in the profit & loss account. The ld.AO found that it has given costly gifts to certain parties. He worked out such amount at Rs. 1,17,40,918/-. The AO disallowed this amount out of total claim made by the assessee. The reasons assigned by him is that the assessee failed to give list of persons to whom such valuable gifts have been made for business promotion. On appeal, the ld.CIT(A) has restricted this disallowance to Rs. 9.50 lakhs. 19. In the Asstt.Year 2014-15, the assessee has debited a sum of Rs. 1,15,86,601/- as sales promotion expenses. The ld.AO found that Rs. 30,52,101/- were debited by the assessee against trading business and Rs. 85,34,500/- against commission income. The AO has disallowed a sum of Rs. 85,34,500/- and this disallowance has been confirmed by the ld.CIT(A). 20. With the assistance of the ld.representatives, w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssion of the appellant, I am inclined to hold that the AO is not justified in making the impugned addition toto and is against the principle of natural justice. The truth lies somewhere down the line wherein sense of proportion and principle of natural justice would be met. In the facts and circumstances of the case, it is decided that a lump sum addition of Rs. 9,50,000/- would serve the ends of justice. Accordingly, addition to the extent of Rs. 9,50,000/- is confirmed and the balance amounting to Rs. 1,07,90,918/- is hereby directed to be deleted. The appellant gets relief of Rs. 1,07,90,918/-. The ground No.3 is allowed." 21. Stand of the assessee is that it was in the business of trading in computer spares and peripheral. It was also providing maintenance services. There are many suppliers in the area of business, in which the assessee was engaged. In order to remain in the market, and also to maintain assessee's hold in the market, it is essential to incur expenditure on sale promotion. The assessee further contended that it has achieved a turnover of Rs. 102.32 crores, and against which it has incurred expenditure of Rs. 1,29,93,438/-, which is just 1.14% of the total turno....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... concerned, the AO was of the view that the assessee could not produce proprietor of M/s.Parkash Gold from whom the alleged gold was purchased, which was converted into 5-10 grams of gold coins. The assessee pleaded before the ld.CIT(A) that factum of existence of Parkash Gold has been accepted by the ld.CIT(A) in the Asstt.Year 2013-14. It was not in doubt. The assessee also contended that this sale promotion expenditure was incurred consistently in the earlier year, and these have been allowed to the assessee. The ld.CIT(A) concurred with the AO that the assessee failed to prove purchase of the gold out of which gold coins were got manufactured. The evidence exhibiting the fact of purchase of gold is for the accounting period relevant to the Asstt.Year 2014-15 i.e. before 31.3.2014. The AO has started inquiry in June, 2016. He has deputed Inspector to locate the shop somewhere in June, 2016. Emphasis of the AO is to the effect that whereabouts of Parkash Gold is not known, and the assessee failed to produce Shri P.V. Soni, proprietor of that concern. In this way, the ld.AO treated claim of the assessee as bogus. 25. On the other hand, the stand of the assessee is that it has pur....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Jivdaya Panjrapoie charitable trust 25,00,000 6 Shri Vardhaman Jjivdaya Panjrapoie Charitable Trust 25,00,000 Total 6, 79,00, 000 29. In the Asstt.Year 2012-13, the AO has disallowed this donation of Rs. 55 lakhs. However, in the Asstt.Year 2014-15, he disallowed a sum of Rs. 5,46,32,892/- out of total donation made by the assessee. The finding of the ld.CIT(A) while deleting disallowance of Rs. 55.00 lakhs in the Asstt.Year 2012-13 reads as under: "7.1 Decision: I have carefully gone through the appellant's contentions reoroduced herein above. I have also perused the relevant paragraph of the Assessment Order under appeal. Upon perusal of records of proceedings, I find it as a fact that the appellant has given contribution of Rs. 55,00,000/- to Rashtriya Komi Ekta Party, which is a political party duly registered with the Election Commission of India. The necessary documentary evidences in the form of copy of the receipt of the donation given and also evidence regarding registration of the said political party with the Election Commission of India had been furnished by the appellant before the AO in the course of Assessment proceedings and also before me i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ot be by a local authority i.e. Municipal authority etc. or any artificial juridical person wholly or partly funded by the Government. In other words, donation should not be given by a local authority or by a corporation funded by the Government. Except these two categories of the assessee, if any other assessees made a contribution to a political party, then such contribution would be allowed as deduction. Explanation appended to this section further provides the meaning of a political party and it contemplates a "political party" means a political party registered under section 29A of the Representation of the People Act, 1951. The assessee has produced details of payment made through account payee cheques as well as registration certificate of these political parties before the AO. Only exclusion made with effect from 1.4.2014 is that donation should not be made in cash and this clause is not applicable on the facts of the assessee's case, because it has made through account payee cheques. Next category of donee is charitable institution. These institutions got registered under section 12A of the Income Tax Act. Their incomes are to be assessed under sections 11, 12 and 13 of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ounds of Revenue raised in the Asstt.Year 2012-13. The ld.CIT(A) has rightly deleted the disallowance of Rs. 55.00 lakhs. This ground of appeal is rejected. On the same analogy, the grounds appeal raised by the assessee in the Asstt.Year 2014-15 for disallowance of Rs. 5,86,32,892/- is allowed. 33. In the result, ITA No.1778/Ahd/2016 (by Revenue) is dismissed, and ITA No.1900/Ahd/2016 (by assessee) is partly allowed. 34. Now we take remaining grounds of appeal in the Asstt.Year 2014- 15. 35. Ground no.1 and 3, we have already adjudicated along with appeal for the Asstt.Year 2012-13. In Ground No.2, the grievance of the assessee is that the ld.CIT(A) has erred in confirming the disallowance of Rs. 17,74,045/- which was disallowed by the AO out of travelling expenditure. 36. Brief facts of the case are that the assessee has debited total expenses of Rs. 73,38,974/- towards travelling expenses. The ld.AO has gone through the record and also recorded statement of partner Shri Kirit Patel. He found that out of total expenses a sum of Rs. 14,29,324/- were incurred for personal trip of Shri Kirit Patel to South Africa. He also discussed that expenditure incurred for the visit of Smt.A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rstatement of closing stock to the extent of Rs. 12,03,408/- and made addition of Rs. 27,60,687/- in the total income of the assessee. Action of the AO was challenged before the first appellate authority. Before the ld.CIT(A), the assessee has submitted that item-wise details of inventory was submitted before the AO during the assessment, and the AO arbitrarily adopted average value of the computer table/chair without considering the fact that there were different types of computer tables and chairs having different purchase price, and therefore, they could not be averaged. The assessee further submitted that the similar method of valuation followed by the assessee year and year and has been accepted by the department. It further submitted that adjustment on account of valuation of closing was tax neutral, and would not fasten any tax liability, because value of closing stock of the year would become opening stock in the next year, and therefore, there is no logic for the assessee to underestimate the value of closing stock. However, the ld.CIT(A) based on the specific observations of the AO dismissed submissions of the assessee in the absence of evidence, and accordingly confirmed....