TaxTMI 
TaxTMI 
2022 (2) TMI 42
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...."1 Ld. CIT (A) erred in law and on facts in confirming action of AO in not considering addition of Rs. 82,54,455/- made on account of disallowance of custom duty paid set aside for verification to the file of AO. Ld. CIT (A) erred in not appreciating that appellant in compliance with the direction submitted complete evidence of payment of custom duty in the relevant previous year along with bills of entries that were set aside for verification. Ld. CIT (A) ought to have adjudicated and deleted disallowance of custom duty paid. It be so held now. 2 Ld. CIT (A) erred in law and on facts in confirming rejection of claim of netting of interest by AO while computing deduction u/s 80IA of the Act. Both the lower authorities failed to appreciate detailed submissions made by appellant establishing nexus between interest income and expenditure to justify the claim that only net 'interest income' to be taken out from the calculation of profits of the business for computing deduction u/s 80IA of the Act as per the ratio of the latest judgment of the Hon'ble Apex Court. Ld. CIT (A) ought to have granted netting off interest computed by the appellant while granting deduction u/s 8....
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....fit of the deduction for the custom duty as provided by the Ld. CIT-A in his order dated 5th January 2007. As such, the AO in his order dated 31st December 2012 under the provisions of Section 143(3) r.w.s. 254 of the Act has not given any benefit of deduction as directed by the Ld. CIT-A in the order dated 5th January 2007. 9. The assessee against the order of the AO preferred an appeal to the Ld. CIT-A who denied the benefit to the assessee in his order dated 4th December 2013 by observing that there was no such direction arising from the order of the ITAT dated 21st October 2011 for allowing the benefit of the deduction of the custom duty paid by the assessee during the relevant year. 10. Being aggrieved by the order of the Ld. CIT-A, the assessee is in appeal before us. 11. The Ld. AR before us filed a Paper Book running from pages 1 to 113 and filed the chronological events as detailed under: Sr. No. Date Particulars 1 28-11-00 Return of income filed 2 31-03-03 Assessment order u/s. 143(3) of I.T. Act 3 05-03-04 Order passed by Hon'ble CIT(A) 4 03-12-04 Order passed by Hon'ble ITAT 5 29-12-04 Assessment order u/s. 143(3) r.w.s. 254 of I.T. Act ....
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....ilable on record. Admittedly, originally the proceedings initiated against the assessee under the provisions of Section 143(2) of the Act which raised up to the ITAT. The assessee for the first time before ITAT claimed the deduction on account of custom duty for Rs. 82,54,455/- by making additional claim. The ITAT in ITA No. 1481/Ahd/2004 vide order dated 3rd of December 2004 was pleased to admit the claim and allow the deduction to the assessee subject to the verification. The relevant finding of the order of the ITAT reads as under: "...in the additional ground raised the assessee wants relief on account of applicability of section 43B. In the facts and circumstances of the case, we are of the considered opinion that in view of the decision in Berger Paints (supra) the entire amount of excise duty/custom duty paid by the assessee in particular accounting year is allowable under section 43B of the Act, as deduction in respect of that year, irrespective of the amount of excise duty/custom duty included in value of assessee's closing stock at the end of accounting year as related thereto. So in the interest of justice we restore this issue to the file of AO for deciding the same a....
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....enied the benefit of the claim of the assessee in his order dated 4th December 2013. 23. Before the adjudicating the issue raised by the assessee before us whether the claim of the assessee for the deduction of the custom duty is admissible in the given facts and circumstances, we take a note of the fact that the assessee has claimed the deduction for the custom duty in the proceedings under Section 143(3) of the Act first time before the ITAT which was admitted and allowed subject to the verification by order dated 3rd December 2004. Thus, the question arises, the claim which have been made by the assessee in the proceedings under Section 143(3) of the Act, can the assessee made a similar claim in the income escapement proceedings. 24. Reassessment proceedings under Section 147 of the Act are for the benefit of the revenue and not for the assessee as held by the Hon'ble Supreme Court in the case of CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 297 (SC)/64 Taxman 442. It is not for the taxpayer to convert the reassessment proceedings in to a regular assessment proceeding and agitate issues which were concluded in the original assessment proceedings. The Income tax liability....
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....005. The AO found that the assessee while calculating the deduction under section 80IA of the Act has taken certain other income under consideration as detailed below: (i)Interest income Rs. 5,91,30,485/- (ii)Dividend income Rs. 15,726/- (iii)Other income (a)Exchange rate difference Rs. 13,37,569/- (b)Excise credit Rs. 2,61,759/- (c)Kasar/Vatav Rs. 5,687/- (d)Excess provision of written back of bonus Rs. 2,85,809/- Rs. 18,90,824/- Rs. 74,50,143/- (iv)Export Incentives (DEPB) Rs. 2,09,507/- (v)sundry balances Total Rs. 6,86,96,685/- 28. However, the AO in his order dated 21-03-2006 has excluded the aforesaid income while computing the deduction available to the assessee under section 80IA of the Act. 29. Aggrieved assessee preferred an appeal to the learned CIT-A, who vide order dated 05-01-2007 confirmed the order of the AO. 30. Being aggrieved by the order of the learned CIT-A, the assessee preferred an appeal to the ITAT bearing ITA No. 1039/Ahd/2007 which was disposed of vide order dated 21-10-2011 by allowing the claim of the assessee in part by observing as under: ....
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....between the interest income and the expenses. The assessee in support of his contention also filed the copy of the annexure bearing number 4A and 4B. 32. However, the AO disregarded the contention of the assessee by observing that the issue for the allowability of netting of interest was set aside by the ITAT to verify the issue in the light of the latest available Judgments. But the assessee failed to file the latest judgments on this issue as directed by the ITAT. Thus the AO excluded the gross amount of interest amounting to Rs. 5,91,30,485/- for calculating the deduction under section 80IA of the Act. 33. The assessee carried the matter before the learned CIT-A, who has also confirmed the order of the AO by observing as under: The appellant failed to establish any nexus of borrowed capital with bank FOR interest and interest on advances. The appellant simply taken the contention that matter is 12 years old hence such nexus cannot be established hence no logical reasoning was given except the contention only. In my view, no prudent business person will invest the borrowed fund into investment in bank FDR to earn interest less than the interest required to be paid. Neither in....
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....ter netting of the expenses. Admittedly, the ITAT in the original proceedings under section 147 of the Act in ITA No. 1039/Ahd/2007 vide order dated 21-10-2011, has directed to the AO to allow the claim of the assessee after verifying the nexuses between the interest income with the interest expenses. If the nexuses is found then the AO was to allow such interest expenses against the interest income to work out the net interest income so as to exclude the same from the computation of the deduction under section 80IA of the Act. The relevant finding of the ITAT in ITA No. 1039/Ahd/2007 has already been reproduced in the preceding paragraph. 38. Thus, the remains no ambiguity the fact that it was the onus upon the assessee to establish based on the documentary evidence that the assessee has incurred interest expenses against the interest income. But the assessee failed to do so. Likewise The learned CIT-A, also found that the assessee failed to establish the direct nexuses between the interest income and the interest expenses. 39. Even before us, the learned AR appeared on behalf of the assessee has just made a request to allow the netting of interest income while calculating the d....
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....ssment' includes both 'nonassessment' as well as 'under assessment'. Income is said to have 'escaped assessment' within the meaning of this section when it has not been charged in the hands of an assessee in the relevant year of assessment. The expression 'assess' refers to a situation where the assessment of the assessee for a particular year is, for the first time, made by resorting to the provisions of section 147 because the assessment had not been made in the regular manner under the Act." 42. In view of the above, we hold that the claim of the assessee for the netting of interest income while computing the deduction under section 80-IA of the Act is not maintainable in the given facts and circumstances for the reason that the present proceedings before us are under Section 147 of the Act which cannot extend any benefit to the assessee. Accordingly, without going into the intricacies whether the assessee is eligible for the netting of interest for computing the deduction under section 80-IA of the Act, we hold that the claim of the assessee is not maintainable. Even on merit we note that the ITAT on the previous occasion has set aside the i....
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....came unsalable & obsolete. It be so held now. 7 Ld. CIT (A) erred in law and on facts in confirming addition made by AO of Rs. 44,573/- on account of non payment of PF & ESI amount within mandatory period. Ld. CIT (A) ought to have deleted addition. 8 Confirming levy of interest u/s 234A/234B/234C & 234D is not justified. 9 Initiation of penalty u/s 271(1)(c) of the Act is not justified. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal." 45. The assessee vide letter dated 31-03-2020 has raised the additional ground of appeal as reproduced hereunder: "1. Ld. CIT(A) erred in law and on facts in confirming disallowance of depreciation of Rs. 2,51,50,281/- out of depreciation disallowed by AO of Rs. 2,74,83,963/-. Appellant craves leave to add, amend, alter, change, delete and edit the above ground of appeal before or at the time of hearing of the appeal." 46. The first issue raised by the assessee is that the Ld. CIT-A erred in confirming the order of the AO by sustaining the disallowance of the depreciation of Rs. 82,20,059/- on the amount of interest ca....
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....an from ARCIL. The learned AR for us reiterated the contentions made before the authorities below. 52. On the contrary learned DR vehemently supported the order of the authorities below. 53. We have heard the rival contentions of both the parties and perused the materials available on record. In the present case, the amount of depreciation claimed by the assessee on the amount of interest capitalised in the year under consideration was denied by the AO on the reasoning that there was no payment of interest by the assessee. As such the amount of interest was converted into the principal amount of loan which was taken over by ARCIL and thus there was no interest payment made by the assessee. 54. Admittedly, the machines were purchased by the assessee on the money borrowed from the ICICI bank. The assessee on such loan has also incurred the interest expenses. Undeniably, the assessee was under the obligation to make the payment to the ICICI bank for the interest amount. But the assessee instead of making the payment of the loan has shifted the entire amount of interest along with the principal amount of loan from the ICICI bank to ARCIL. It was the decision of the assessee to conti....
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....ide the finding of the learned CIT-A, and direct the AO delete the addition made by him. Hence the ground of appeal of the assessee is allowed. 56. The second issue raised by the assessee is that the learned CIT-A erred in confirming the addition made by the AO for Rs. 3,59,653/- representing the prior period expenses. 57. The assessee in the year under consideration has effectively claimed an expense of Rs. 3,59,653/- as prior period expenses after making the adjustment of the prior period income. The AO during the assessment proceedings sought an explanation from the assessee further such prior period expenses were crystallized in the year under consideration. But there was no explanation furnished by the assessee. Accordingly, the AO observed that the assessee should have claimed such expenses in the year to which it pertains as per the mercantile system of accounting. Accordingly, the AO disallowed the same and added to the total income of the assessee. 58. Aggrieved assessee preferred an appeal to the Ld. CIT-A, who confirmed the order of the AO by observing as under: "7.2 I have carefully considered the submissions made by the appellant and the argument taken by the asse....
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....the assessment year 1952-53 or in the assessment year corresponding to the accounting year 1952, that is in the assessment year 1953-54, should be a matter of no consequence to the Department; and one should have thought that the Department would not fritter away its energies in fighting matters of this kind. But, obviously, judging from the references that come up to us every now and then, the Department appears to delight in raising points of the character which do not affect the taxability of the assessee or the tax that the Department is likely to collect from him whether in one year or the other." 63. In view of the above, we find difficult to convince ourselves with the finding of the authorities below. Accordingly, we set aside the decision of the Ld. CIT-A, and direct the AO to delete the addition made by him. Hence, the ground of appeal of the assessee is allowed. 64. The issue raised by the assessee in ground No. 3 is that the Ld. CIT-A erred in confirming the addition made by the AO for Rs. 80,000/- on account of nonpayment of outstanding dues under the provisions of Section 41(1) of the Act. 65. The AO during the assessment proceedings found that there was the outsta....
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....fore us contended that loan liability was representing against the fixed assets being capital in nature. Therefore, the provisions of section 41(1) of the Act are not applicable in the given facts and circumstances. 71. On the contrary, the Ld. DR vehemently supported the order of the authorities below. 72. We have heard the rival contentions of both the parties and perused the materials available on record. In the present case, the revenue has found that there was a liability the books of the assessee which was outstanding since many years. The amount of liability was of Rs. 80,000/- only. As such the assessee in the preceding years has acquired a car on credit. Impugned liability was representing against the car. Admittedly, the assessee has claimed depreciation on such car in the books of accounts. However, the liability against such car was not paid by the assessee to the tune of Rs. 80,000/- and therefore the AO treated the same as cessation/remission of the liability of the assessee under the provisions of section 41(1) of the Act. Accordingly, the AO made the addition of Rs. 80,000/- to the total income of the assessee which was subsequently confirmed by the Ld. CIT-A. 73....
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....penditure or trading liability as envisaged under the provisions of Section 41(1) of the Act. Accordingly, we are of the view that such outstanding liability against the car cannot be treated as trading liability and therefore the same is outside the purview of the provisions of Section 41(1) of the Act. In holding so, we draw support and guidance from the judgement of Hon'ble Supreme Court in the case of Nectar Beverages (P.) Ltd. reported in 182 Taxman 319, wherein it was held as under: "Where any allowance or deduction had earlier been made in respect of any loss, expenditure or trading liability and, subsequently, the assessee has obtained or realized any amount towards such loss, expenditure or trading liability, section 41(1) deems such realization/recoupment as the assessee's income for the year in which it is realized. Section 41(2), as it stood at the material time, stated that if in respect of any plant and machinery, any depreciation had been allowed and, subsequently, such plant and machinery was sold, discarded or destroyed, the assessee might have got some value either as a result of sale or insurance or from salvage or compensation thereabout. The necessity to ....
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.... assessee preferred an appeal to the Ld. CIT-A, and reiterated its submission made during assessment proceeding. 81. However, the Ld. CIT-A after considering the fact in totality confirmed the order of the AO by observing as under: "11.2 I have carefully considered the submissions made by the appellant and the argument taken by the assessing officer in the light of material available on records. The appellant has reiterated the arguments taken before the A O it is an admitted fact of the case that the appellant has not undertaken any manufacturing activity from Unit-1 in respect of which depreciation was claimed. Section 32 of the Act prescribes allowance of depreciation provided the asset is used for the purpose of business. In the instant case as asset was not exploited, no depreciation can be allowed. Consequently the addition made by the A O of Rs. 1,14,999/- is confirmed and the ground of appeal No,. 10 is dismissed." 82. Being aggrieved by the order of the Ld. CIT-A the assessee is in appeal before us. 83. The Ld. AR before us submitted that the fixed assets of unit No. 1 have lost their individual identity once merged with the block of assets which were used in the earl....
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.... used for a particular year for the purpose of the business. Accordingly, we set aside the finding of the Ld. CIT-A, and direct the AO to delete the disallowance made by him. Hence, the ground of appeal of the assessee is allowed. 88. The issue raised by the assessee in ground No. 5 and 6 is that the Ld. CITA erred in confirming the addition made by the AO for Rs. 1,53,28,000/- representing the closing value of raw materials, spares, WIP and finished goods written off on account of obsolescence. 89. The assessee during the assessment proceedings claimed that there were certain forms of raw materials, stores and spares, work in progress and finished goods which were not serviceable and became obsolete. To this effect, a report was prepared by the chartered accountant being internal auditor and stock auditor of those items which were non-moving. Accordingly, the assessee has recorded these items either at nil value or the realisable value. Thus, the assessee has written off the value of such items by Rs. 1,53,28,000/-. 90. However, the AO disregarded the contention of the assessee by observing that there was no report furnished by the assessee of an expert suggesting that the impu....
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....ts original value itself proves that the principle of cost or market price whichever is lower was not applied. Consequently as the appellant has failed in providing a satisfactory explanation with any evidence, the addition made by the ld A O of Rs. 1,53,28,000/- is confirmed and the ground of appeal No. 12 is dismissed. The impugned amount of Rs. 1,53.28,000/does not falls in the category of business or trading loss as it was not a loss which had occurred naturally but was self created. It is a settled principle of law that only those business losses can be allowed which occur naturally in course of an activity and are not self created. Consequently, the same cannot be allowed as a business or trading loss. Therefore alternative ground of appeal No.,13 is also dismissed." 94. Being aggrieved by the order of the Ld. CIT-A the assessee is in appeal before us. 95. The Ld. AR before us submitted that the items which were non-moving and unusable have been written off in the profit and loss account which are eligible for deduction. These items were written off based on the report of the chartered accountant/internal auditor. 96. On the contrary Ld. DR before us vehemently supported t....
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....closing stock. We also note that the Hon'ble Supreme Court in the case of Mahindra Mills Ltd vs. PB Desai Appellate Assistant Commissioner reported in 99 ITR 135 has held that the closing stock of the year will become the opening stock of the next year hence the same telescoped. The relevant observation of the Hon'ble Supreme court reads as under: Since the closingstock of one assessment year furnished the figure of the opening stock for the succeeding year, it followed that the record showing the closingstock of assessment year 1959-60 formed a part of the evidence relevant to the assessment for the assessment year 1960-61. Thus, to the extent of ascertaining the closing and opening stock positions, the two assessments telescoped into each other. 99. On this reasoning, as discussed above, in our view no addition representing the adjustment in the value of closing stock is warranted. 100. Without prejudice to the above, we also note that it is a prevailing practice in a manufacturing industry that the items such as raw materials, stores and spares, finished goods with the passage of time become obsolete, sometime some item becomes defective due to normal wear and tear. Therefor....
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....ontended by the assessee that there was the change in the management of the company and therefore the new management has taken a decision. Thus, it is transpired that, the stock has been written off from the books accounts in systematic manner by the approval of the Board of Directors. Therefore, all these details cannot be brushed aside. 102. We note that in the similar and identical facts and circumstances, the Hon'ble Gujarat High Court in the case of Pr. CIT vs. Zydes Wellness Ltd. reported in 81 taxmann.com 159 has held as under: "Considering the aforesaid facts and circumstances of the case, more particularly, it was found that the assessee has followed due procedure, maintained the list of packaging material contains clear description of the goods that were considered to be not usable and also the list for damaged stock clearly show the material, quantity and description of the various items which were lying at different godowns across the country which were considered to be damaged and accordingly the statement for provision for damage was prepared and on that basis the goods have actually been reduced from the closing stock of finished goods, it cannot be said that the ....
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.... supported the order of the authorities below. 109. We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, the assessee is required deposit the employee's contribution towards the PF/ESI within the time specified under the respective Act. If it is not done so, the same is treated as income of the assessee under the provisions of Section 2(24)(x) read with Section 36 (1)(va) of the Act. Under the provision of PF and ESI Act, the period for making the payment has been specified within 15 days from the end of the month in which salary of the assessee became due. However, there has been given the grace period of 5 days under the relevant Act for making the payment of employee's contribution towards the PF/ESI. Therefore the assessee is liable to deposit the employee's contribution on or before 20th day of the month from the close of the month in which the salary was due for payment. Therefore in our considered view grace period of 5 days should also be allowed to the assessee as provided under the respective Act. In holding so we draw support and guidance from the judgment of Hon'ble Jurisdictional High Court in case of CIT v....
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....light of material available on records. The impugned matter of disallowance of depreciation has now been more or less settled in view of order of Hon'ble jurisdictional Tribunal. The order of AO u/s. 143(3) / 254 for A Y 2005-06 dt 15-3-2013 indicates that though the disallowance of depreciation remains in principle, its quantum gets modified in view of order of the Hon'ble Tribunal. As indicated above, according to appellant as against total original disallowance of Rs. 2,74,83,963 the disallowance now comes to Rs. 2,51,50,281/-. The A O is however directed to re-verify the calculations prepared by the appellant in the light of his own calculations done vide order dt 15-3-2013 supra. In case the amount of depreciation to be disallowed exceeds Rs. 2,51,50,281/- then disallowance to the extent of such excess amount shall stand confirmed. Consequently in view of above directions, the addition made by the A O is restricted to the extent of Rs. 2,51,50,281/- and the ground of appeal No.2 is partly allowed subject to recalculation at the end of A O." 114. Being aggrieved by the order of the Ld. CIT-A, the assessee is in appeal before us. 115. The Ld. AR before us submitted tha....
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....on 4th May, 2015 and on 12.08.2012 and on 19.09.2012 requesting the Assessing Officer to carry out the physical inspection of the machines. But ld. A.O. did not bother to inspect the same for the reason that ITAT did not give him direction to physically inspect the machines wherein in department appeal filed before the ITAT directed the ld. A.O. that he shall pass reasoned order by giving reasonable sufficient opportunity to the assessee considering the valuation report of Dalal Mott Macdonald and the evidences produced by the assessee for purchase of tangible assets. As we can see, ld. A.O. did not bother to carry out the physical inspection and valuation report of Dalal Mott Macdonald and did not consider evidences such as photograph of the plant and machinery submitted before the ld. A.O. in pursuant to the ITAT direction. 10.We draw support from the case of Hon'ble Supreme Court in the matter of CIT vs. S. Khader Khan Son (2013) 352 ITR 480 (SC) wherein Hon'ble Supreme Court has held that only on the basis of statement recorded during the survey proceeding u/s. 133A cannot be basis of addition. There has to be corroborative evidence in support of the contention of the ld. A.O....
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....ot justified. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any other grounds of appeal at the time of or before the hearing of the appeal." 121. The first issue raised by the assessee in the ground no. 1 and 2 of appeal is that the Ld. CIT-A erred in confirming the disallowance of the depreciation for Rs. 1,74,17,074/- and Rs. 6,07,062/- on opening WDV. 122. At the outset we note that the issues raised by the assessee in its ground of appeal for the AY 2008-09 is identical to the issues raised by the assessee vide additional ground in ITA No. 218/AHD/2014 for the assessment year 2007-08. Therefore, the findings given in ITA No. 218/AHD/2014 shall also be applicable for the year under consideration i.e. AY 2008-09. The appeal of the assessee for the assessment 2007-08 has been decided by us vide paragraph No. 117 to 118 of this order in favour of the assessee. The Ld. AR and the DR also agreed that whatever will be the findings for the Assessment Year 2007-08 shall also be applied for the year under consideration i.e. AY 2008-09. Hence, the grounds of appeal filed by the assessee is allowed. 123. The issue raised by the assessee in ground....
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....AO appreciating submissions & documentary evidence placed on record. 2 Ld. CIT (A) erred in law and on facts in confirming disallowance made by AO without verification of purchase bills of assets or payment to suppliers for assets recorded in asset register corroborated by report of Dalai Mott Macdonald. Ld. CIT (A) ought not to have confirmed disallowance simply on the basis of survey report. 3 Ld. CIT (A) erred in law and on facts in not considering further valuation done from Shri Mukesh M Shah by holding it to be self-serving document. Ld. CIT(A) ought to have taken cognizance of valuation corroborating existence of the assets. Ld. CIT(A) ought not to have relied on finding of the survey report that only assets installed in 2001 & 2002 be considered as real addition. 4 Ld. CIT (A) erred in law and on facts in confirming disallowance by AO without granting opportunity to the appellant to cross examination of the statements recorded during survey. Ld. CIT(A) ought to have directed AO to evaluate claim of depreciation. 5 Ld. CIT (A) erred in law and on facts in confirming action, of AO in disallowing Prior Period Expenses of Rs. 18,27,854/- ignoring fact that same is cryst....
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....ion made by the AO for Rs. 18,27,854/- representing the prior period expenses. 133. At the outset we note that the issues raised by the assessee in its ground of appeal for the AY 2009-10 is identical to the issues raised by the assessee vide groundno-2 in ITA No. 218/AHD/2014 for the assessment year 2007-08. Therefore, the findings given in ITA No. 218/AHD/2014 shall also be applicable for the year under consideration i.e. AY 2009-10. The appeal of the assessee for the assessment 2007-08 has been decided by us vide paragraph No. 62 to 63 of this order in favour of the assessee. The Ld. AR and the DR also agreed that whatever will be the findings for the Assessment Year 2007-08 shall also be applied for the year under consideration i.e. AY 2009-10. Hence, the grounds of appeal filed by the assessee is allowed. 134. The issue raised by the assessee in ground no. 6 is that the Ld. CIT-A erred in confirming the addition of Rs. 15,40,000/- on account of disallowances of provision for bad and doubtful debts. 135. The assessee during the year made provision for bad and doubtful debt for an amount of Rs. 15.4 Lacs. The AO required the assessee to establish that the same were credited i....