TaxTMI 
TaxTMI 
2022 (7) TMI 548
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....rder passed u/s 263 of the Income Tax Act 1961 relevant to the Assessment Year 2017-18. Since issues involved in all these appeals are identical, we proceed to dispose of all the appeals by this common order for the sake of convenience and brevity. First we take ITA No. 139/Rjt/2015, an appeal by the Assessee for AY 2011-12. 2. The assessee has raised the following grounds of appeal:- "(1) The order of the learned CIT(A) partly confirming the order of the AO is bad in law and contrary to the facts of the case. (2) The learned CIT(A) has erred in confirming the action of the AO disallowing the provision for liabilities for performance guarantees /warrantees amounting to Rs. 1,84,77,348/- considering it as contingent liability (3) The order of the learned CIT (A) is illegal, unjustified and against the principles of natural justice. (4) Without prejudice to the above, your appellant craves leave to add amend, alter, vary or withdraw all or any of the grounds on or before the hearing of appeal." 3. The only issue raised by the assessee is that the ld. CIT(A) erred in confirming the disallowance made by the Assessing Officer for Rs. 1,84,77,....
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....t of guarantee vis-à-vis sale of the product has direct nexus and therefore the same should be identified in the year of sale of the product. 8. The contention of the assessing officer that there was no claim made by the assessee against the provisions made in the earlier years is based on wrong assumptions of facts. It is for the reasons that the assessee have been receiving complaints from his customers and to resolve these complaints, it is providing after sale services, repair and maintenance and replacement services wherever necessary. These expenses were claimed under the respective heads of incomes instead of adjusting against the provision for guarantee/warranty. 9. The assessee with regard to the rate of provision being 10% of the contract price submitted that it has been accepted in the earlier years by the Revenue, therefore, the same should be allowed in the year under consideration as well on account of consistency. 10. If there is no claim against the provision, the same is reversed in the subsequent year and therefore there is no loss to the Revenue except shifting the income from one year to another. However, ld. CIT(A) disregarded the contention of ....
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....ity is purely contingent in nature. In the case of Renowed Auto Products Mfgs. P. Ltd. vs. ITO 354 ITR 127 the Hon'ble Madras High Court while deciding an exactly identical issue has held as under:- "The Tribunal pointed out that the Assessing Officer has not at all examined the aspect with regard to the admissibility of the sum shown as provision for warranty cost. It further also pointed out that the method as projected by the assessee in their reply, in showing the warranty provisions under the categories of after market (AM) and original equipment (OE) by debiting the account by passing a journal voucher, was never explained before the Assessing Officer nor was it examined by him. Thus, the Tribunal held that liability is only an unascertained contingent liability. When such being the factual findings of the authorities below, and when such non-consideration or omission by the Assessing Officer is found to be an erroneous one and prejudicial to the interests of the revenue, there was no reasons to interfere with such factual findings. [Para I l] Further the Commissioner as well as the Tribunal categorically found that the assessee had not proved the provis....
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....d to the customer, it (the customer) can always approach the company either for the replacement of the product or repair of the product, as the case may be. Indeed, the sales made by the assessee is the income in the hands of the assessee but the same is subject to liability which may arise to it by virtue of the guarantee/warranty provided by it to the customers. Thus when the assessee is making sales of its product with the guarantee/warranty, the question arises whether the assessee is required make the provision for the guarantee /warranty against the sales made by it. The answer stands in positive. It is for the reason that there is correlation between the sales and the guarantee/warranty extended by the assessee. Once a revenue has been recognized in the books of accounts on account of sales, the corresponding liability which may arise to the assessee on account of guarantee/warranty against such sale should also be recognized in the books of accounts. 14.2 In holding so, we draw support and guidance from the judgment of Hon'ble Supreme Court in the case of Rotork Controls India (P.) Ltd. v. Commissioner of Income-tax, Chennai reported in 314 ITR 62 wherein it was held as ....
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....it. On this basis a sensible estimate should be made. The warranty provision for the products should be based on the estimate at year end of future warranty expenses. Such estimates need reassessment every year. As one reaches close to the end of the warranty period, the probability that the warranty expenses will be incurred is considerably reduced and that should be reflected in the estimation amount. Whether this should be done through a pro rata reversal or otherwise would require assessment of historical trend. If warranty provisions are based on experience and historical trend(s) and if the working is robust then the question of reversal in the subsequent two years, in the above example, may not arise in a significant way. In our view, on the facts and circumstances of this case, provision for warranty is rightly made by the appellant-enterprise because it has incurred a present obligation as a result of past events. There is also an outflow of resources. A reliable estimate of the obligation was also possible. Therefore, the appellant has incurred a liability, on the facts and circumstances of this case, during the relevant assessment year which was entitled to deduction und....
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....e form of maintenance and repairs of the products sold by it. As such the assessee was receiving the complaints from its clients about the technical defects, breakage, under capacity which were timely handled by it. The corresponding expenses were debited under the respective heads. The relevant submission made by the assessee before the learned CIT-A reads as under: After goods are sold the appellant has to provide various after sales service, supervision, maintenance and repairs from time to time. No guarantee in invoked because of the satisfactory performance of the machinery and satisfactory after sales service and support. It does not mean that there is no liability for your appellant towards the claim. Your appellant did receive complains from the customers regarding performance, output, technical defects, breakage, under capacity etc. E mail communication between customers and Appellant are there on record which evidence these complains. Your Appellant attended these complain, rectified the mistakes, carry out the repairs, deputed the technical personnel, replaced the defective parts etc. The expenses incurred for these issues are debited under the respective head o....
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....apital and loan has furnished the proof of identity and credit worthiness of the parties and genuineness of the transaction by verifying the bank statement and availability of the fund in the hands of the company. Thus it was contended by the assessee that no addition of whatsoever under the provision of section 68 of the Act is warranted. The assessee also submitted that it is not under obligation to explain the source of source of the funds in the hands of the company i.e. M/s RNG Finlease. 17.1 The assessee in support of his contention has relied upon the judgment of Hon'ble Gujarat High Court in the case of Pragti Co-Op Bank reported in 278 ITR 169. However, the Assessing Officer was not satisfied with the contention of the assessee by observing that the documents such as bank accounts, share application form, PAN Card, audited accounts and the allotment letter does not prove the genuineness of the transaction. The Department while framing the assessment in the case of M/s. Sunshines Tiles Company Pvt Ltd., found that such company has taken bogus unsecured loan from M/s. RNG Fin Lease Pvt Ltd. in the assessment year 2010-11. 17.2 Furthermore, the assessee failed to produc....
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....erving as under: 5.3 I have carefully considered the appellant's contention, the details filed and the assessment order. It is observed that the main plank on which the A.O. has based his addition is the non-production of the promotors before him leading to non-verification of the genuineness, capacity and identity. The Assessing Officer has also observed that the appellant has not offered any security for the unsecured loan. Also, the appellant did not know the persons managing the affairs of the company. The A.O. therefore held that the appellant is hand in glove with the depositor and has converted his black money in the guise of unsecured loans using the 'Kolkata channel'' The A'O' has relied upon the test of human probabilities as given by the Hon'ble Supreme Court in the case of Sumati Dayal (supra). on the other hand, the appellant has submitted all the details filed before the A.O. as required, except for personal appearance by the promoters. 5.4 Before proceeding further, it would be worthwhile to know the details that have been filed by the appellant in respect of the depositors. They are: 1. Memorandum of Association....
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....ires to be analysed is about the genuineness of the transaction. The transaction has been carried out through banking channel and properly reflected in both the accounts, there are no corresponding cash deposits just prior to advancing of loan by the depositor, tax has been deducted on theinterest paid by the appellant and the loan has been subsequently repaid back again through banking channel. The inescapable conclusion therefore is that the transaction is genuine. The A.O. has raised a point regarding the transaction being through 'kolkata route' whereby black money has been converted into white money under the guise of deposit. Merely because the deposit is from Kolkata, the A.O. cannot reach to this conclusion' The AO should have gone further and investigated about the money corning into there bank account of the depositor. The A.O. had to conclusively prove that the appellant had given cash or there was cash deposit in the bank account of the depositor or cash deposits in other accounts from which money has flown to the depositor and then to the appellant. The A.O. has not done anything to this effect and has stopped only at the first level. The A.O,s inference is....
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....law about cash credits has been very well discussed and established by various judicial authorities. In respect of the cash credit u/s.68, the primary onus lies on the assessee to prove the identity of the depositor, its capacity to advance the money and the genuineness of the transaction' In the present case, as the promoters were not produced before hint, the A.O. held that the onus has not been properly discharged by the appellant. I have carefully examined the details filed by the appellant. It is seen that the identity of the depositor is established by virtue of the RoC certificate, PAN, ITR and bank account. It is also pertinent to mention that the depositor has submitted a sworn in affidavit of the managing director of RNG Finlease P. Ltd., confirming the transaction. As regards the capacity of the depositor, the appellant has filed details of paid up that capital, reserves surpluses and net worth of the depositor. It is seen from the details that the depositor has reasonably high net worth and the loan advanced is 3.26% of the net worth of the depositor. The details of cash and bank balances have also been filed. The only issue now requires to be analyzed is a....
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....sis for the addition made by the A.O. stands eroded. Be that as it may, the A.O. has also raised an objection in para-7.5 of the assessment order that, the said loan transaction is not reported by the auditor in Form-3CD and therefore it is not genuine. I have also examined this point. This appears to be an inadvertent omission on part of the auditor. The payment from RNG Finlease has been received by cheque and properly reflected in the bank account. Merely because the auditor has failed to mention this in the audit report does not make the transaction a sham one. The circumstantial evidences clearly point to the fact of the transaction having been carried out between the two parties. This objection raised by the A.O. is also therefore not conclusive enough for making an addition u/s.68. Considering the above discussion, the addition uis.68 is directed to be deleted. This ground of appeal is allowed 6.0 Ground No.4 is regarding addition of Rs.9,05,000/- on account of commission payment for arranging accommodation entries of the unsecured loans. 6.1 The A.O. has held that the appellant must have paid commission to middle man @ 2% for arranging the unsecured loans ....
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....t nor could it make a non-genuine transaction genuine." 23.1 From the preceding discussion we note that admittedly the AO has followed the finding of the AO in the assessment framed under 143(3) of the Act in the case of M/s Sunshine Tiles Co. Pvt. Ltd. without pointing out any defect in the documents submitted by the assessee during the assessment proceedings. As such, it was pointed out by the AO that in the assessment of M/s Sunshine Tiles Co. Pvt. Ltd., it was held that M/s RNG Finlease private Ltd, a company based in Kolkata, was engaged in providing the accommodation entry. Thus, the amount received by the assessee from M/s RNG Finlease private Ltd represents the unexplained cash credit under section 68 of the Act. Furthermore, the AO also held that the assessee failed to produce the director of the company namely RNG Finlease Pvt. Ltd. 23.2 However, the learned CIT(A) held that the assessee has discharged the primary onus cast under section 68 of the Act and deleted the addition made by the AO. In this backdrop we proceed to adjudicate the issue on hand. 23.3 The primary onus lies upon the assessee to furnish the preliminary documents in support of the transactions ....
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....ble to prove that the money received by it was returned in the account of the same party, then there remains no doubt to draw an inference that the advances received by the assessee were unexplained cash credit. Therefore in our considered view, the assessee has discharged its onus imposed under section 68 of the Act. In view of the above, we do not find any infirmity in the order of Ld. CIT (A). 23.8 Once the addition made by the AO has been treated by us, holding the loan transaction and share application transaction between the assessee and M/s RNG Finlease Pvt. Ltd, as genuine, the corresponding addition made by the AO for Rs. 9,05,000.00 on account of bogus transactions is not sustainable. Accordingly, we direct the AO to delete the same. It is not out of the place to mention that learned CIT-A has deleted the addition made by the AO after elaborate discussion which has been reproduced somewhere in the preceding paragraph. The learned DR at the time of hearing has not brought anything on record contrary to the finding of the learned CIT-A. Hence, the ground of appeal of the Revenue is hereby dismissed. 23.9 In the result appeal of the Revenue is dismissed. Now coming ....
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....ssessee has advanced money amounting to Rs. 6,00,000/- without any interest. Therefore, the Assessing Officer was of the view that the interest bearing fund has been diverted by the assessee. Thus, he worked out the amount of interest attributed to such loan and advance for Rs. 72,000/- and disallowed the same by adding to the total income of assessee. 29. Aggrieved assessee preferred an appeal before the Ld. CIT(A), who deleted the addition made by the Assessing Officer by observing as under: The second limb is that, no disallowance is called for as the appellant is having sufficient non-interest bearing share capital and free reserves of Rs.14.74 crores. I find both the arguments convincing. The appellant could not recover the advances on one hand, whereas on the other hand, it had other interest free capital also. Most importantly, the Assessing Officer failed to establish the nexus between the borrowed fund and advanced funds. Therefore, the disallowance made is not justified and hence, directed to be deleted. 30. Being aggrieved by the order of the Ld. CIT(A), the revenue is in appeal before us. 31. Both the Ld. DR and Ld. AR vehemently supported the order of....
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....ded that the impugned land was sold in the same assessment year i.e. AY 2012-13 and Directors in their individual capacity have offered long term capital gain which is much more than the amount of capital gain in the hands of the assessee. The reason for higher capital gain was explained by the assessee that the land was sold after converting into non agriculture land. Accordingly, the assessee contended that there is no question of alleging that the assessee has adopted the colorable device. The Ld. CIT(A) after considering the submission of the assessee deleted the addition made by the Assessing Officer by observing as under: 8.2 I have perused the assessment order and written submission filed by the ld.A.R of the appellant. According to the ld. AR thh wrong recording of purchases in the name of the assessee company instead of the directors is bona fide error due to following reasons. (a)Firstly, agricultural land can be bought by agriculturists only. As per the provisions of the Bombay Tenancy and Agricultural Lands Act, 1948 (Section 63), no person other than the individual agriculturist is allowed to purchase agricultural land in Gujarat. (b)The land....
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....and on which the directors have already offered capital gains in their individual hands. The addition is therefore directed to be deleted. 36. Being aggrieved by the order of the Ld.CIT(A) the revenue is in appeal before us. 37. Both the Ld. DR and Ld. AR before us relied upon the order of the authorities below as favourable to them. 38. We have heard the rival contentions both the parties and perused the materials available on record. From the preceding discussion, we note that the capital gain was calculated in the hands of the assessee considering that the assessee has adopted colorable device to avoid the payment of tax by virtue of provision of section 50C of the Act. However, we note that Directors in their individual hands have paid more Long Term Capital Gain tax than the capital gain computed in the hands of the assessee. This fact has already been reproduced in the order of the Ld. CIT(A) and the same was not controverted by the Ld. DR appearing on behalf of the Revenue. Accordingly, we can conclude that the allegation made by the Assessing Officer that the assessee has adopted colorable device to avoid the tax under the head "Capital Gain" is devoid of any merit....
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....rd the rival contentions of both the parties and perused the materials available on record. Admittedly, there was no exempt income received by the assessee and therefore the question of making the disallowance of interest expenses does not arise. In holding so we relied upon the judgment of Hon'ble Gujarat High Court in the case of CIT Vs. Corrtech Energy Pvt. Ltd. reported in 45 taxmann.com 116 wherein it was held as under: In the present case, the tribunal has recorded the finding of fact that the assessee did not make any claim for exemption of any income from payment of tax. It was on this basis that the tribunal held that disallowance under section 14A of the Act could not be made. In the process tribunal relied on the decision of Division Bench of Punjab and Haryana High Court in case of CIT v Winsome Textile Industries Ltd. [2009] 319 ITR 204 in which also the Court had observed as under : "7. We do not find any merit in this submission. The judgement of this court in Abhishek Industries Ltd (2006) 286 ITR 1 was on the issue of allowability of interest paid on loans given to sister concerns, without interest. It was held that deduction for interest was perm....
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....bject matter of revision under the provision of section 263 of the Act. 49.1 The Ld. AR in support of his contention relied on the judgment of Hon'ble Allahabad High Court in the case of CIT vs. Vam Resorts & Hotel Pvt. Ltd. reported in 111 taxamnn.com 62 and Hon'ble High Court of Madras in the case of Smt. Renuka Philip Vs. ITO reported in 101 taxmann.com 119. 49.2 The Ld. AR also contended that there was notice issued u/s 143(1) of the Act dated 12/09/2019 by the Assessing Officer requiring the details to be furnished under the provision of section 14A r.w. Rule 8D of Income Tax Rules vide question no. 45 placed on page 44 of the paper book. 49.3 The Ld. AR also drew our attention to the reply submitted by the assessee in response to such show cause notice which is placed on pages 34 to 36 of paper book. 50. On the other hand the Ld. DR vehemently supported the order of the authorities below. 51. We have heard the rival contentions and perused the materials available on record. Admittedly, the assessee has preferred an appeal before the Ld. CIT(A) against the disallowance made by the Assessing Officer under the provision of section 14A r.w. Rule 8D of Income tax Ru....