TaxTMI 
TaxTMI 
2022 (8) TMI 745
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.....Nos.18198, 18199, 18201 to 18203, 18206, 18208, 18210, 18209, 18211, 18213, 18212, 18214, 18215 to 18218 of 2019 in W.P.(MD).Nos.21537, 21538 and 21540 to 21544 of 2019 wherein the directions were as under:- 6.After having heard both sides and upon perusal of the documents filed in the form of typed set of papers, it could be seen that without adducing any reason, the second respondent (ITAT) has passed the order impugned herein, that too without extracting the relevant portion of the earlier judgment of the coordinate Bench of the Tribunal in RMKV Fabrics v. DCIT (cited supra). Though the Tribunal is empowered to pass any order in the stay applications, it has to consider each and every issue independently and render its findings with proper reasonings, since reasoning is the heartbeat of every conclusion. Without following this rudimentary principle of law, the second respondent has passed the impugned order, merely referring to the case number of the earlier judgment of the co-ordinate Bench of the Tribunal. Such course adopted by the Tribunal, in the opinion of this Court, cannot be countenanced. 7.In such view of the matter and also in the light of the admit....
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....ifference in the assets is Rs.12,16,85,543, which has not been taken into account for Depreciation. 4. Briefly stated facts are that the assessee company V.V.V. & Sons Edible Oils Ltd., is formed as a public limited company during the previous year 2008-09 w.e.f. 30.04.2008 i.e. relevant to assessment year 2009-10 on conversion of assessee group partnership firm V.V. Vanniaperumal & Sons, Virudhunagar. The partnership firm V.V. Vanniaperumal & Sons, Virudhunagar carried on the business of manufacturing of gingelly oil under the registered brand name of 'Idhayam' and selling the same all over India and also involved in exports of the same. The promoters of the partnership firm i.e., partners, and the directors and shareholders of the present assessee company, are in the same line of family business / group business for more than six decades. Before conversion of partnership firm V.V. Vanniaperumal & Sons into public limited company V.V.V & Sons Edible Oils Ltd., the transferor partnership firm valued all its assets and liabilities at net realizable value and transferred the same to assessee company vide agreement dated 30.04.2008 entered into between V.V. Vanniaperumal & Sons, a ....
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....Rs.8,47,13,996/- 2015-16 Rs.6,35,35,497/- 2016-17 Rs.4,76,51,623/- 4.2 According to AO, the brand value of erstwhile partnership firm assessee's V.V. Vanniaperumal & Sons is not acquired by the business entity and brand value is nothing but a self-generated asset which was created in the books of accounts by the erstwhile firm. The assessee company claimed depreciation in respect of brand value for the financial year 2011-12 relevant to assessment year 2012-13 to till date but the same was not allowed for the reason that no consideration was paid to the partnership firm bythe assessee company for acquiring the said brand value. Therefore, the AO estimated the cost of acquisition of brand value for the assessee company at 'nil'. For this, he noted the reason that all the assets and liabilities available in the books of accounts of the erstwhile partnership firm was succeeded by the assessee company and no consideration has been paid by the assessee company for brand value. He also noted that though the assessee company claims that the shares were allotted to the partners of the erstwhile partnership firm in lieu of alleged transfer of brand value, it does not have any....
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.... liabilities) (excluding intangible assets) Assets (1+3+4) (Tangible assets before Revaluation @ 15,08,27,949 50,08,34,232 Liabilities (a+b) 35,52,17,415 Balance assets value 14,56,16,817 4.5 Therefore, the AO noted all the assets and liabilities of the erstwhile firm V.V. Vanniaperumal & Sons taken over by the present assessee company V.V.V & Sons Edible Oils Ltd., for an agreed consideration of Rs.86,97,13,000/- for which consideration was said to have been paid by way of allotment of 1.49 crores equity shares of nominal value of Rs.10 at a premium of Rs.48.37 per share to the partners of the firm. The AO noted that the assessee company had taken over the entire business of the firm as a going concern without any consideration qua brand value and moreover the assessee company paid only by issuing shares to the partners of the erstwhile firm which is again only a book entry in the books of the assessee company. Therefore, according to AO, the consideration paid by the assessee company in term of issuance of equity shares cannot exceed the actual value of the assets transferred and hence, the AO estimated the goodwill of the assessee company as on 01.04.2009 at Rs....
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....uired the capital asset of goodwill under transfer and that transaction is exempt from capital gains because the cost of acquisition and cost of improvement of the same has to be construed either as nil or the cost to the previous owner. That in the case under consideration happens to be Nil as already confronted to the appellant as per letter referred above. It cannot be so that under one head the cost of acquisition of the property is computed at Nil and the under the other head it is otherwise. That can never be the intent of the legislature. The interpretation attempted by appellant would mean double benefit to the appellant. First getting exempted from capital gains tax and then taking benefit of depreciation under the Head of profits and gains from business. There has to be harmonious interpretation of the provisions of law. 6.6.2. The appellant's second assertion is that the claim of benefit of depreciation u/s 32, section 43 is very clear. This contention of the appellant is not correct. Here it would be worthwhile to refer to the fifth proviso of section 32 that deals with depreciation. The same is extracted below- .............. ................
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....llant's case is Nil only as the goodwill as an asset has been created by the firm on its own by carrying out revaluation otherwise it has not borne any cost for acquiring goodwill. Now, let's see what is provided in explanation 2 to section 43. The same is given as follows:- ..................... ..................... ..................... It can be seen that the explanation 2 to section 43 above is discussing the actual cost of an asset tangible or intangible in case of inheritance that is when asset is transferred from one entity to the other or is gifted by one entity to the other. The actual cost is such situation has to be the actual cost of the previous owner. It needs to be mentioned here that section 49 also discusses the similar situation of inheritance along with succession where assets are transferred as per the circumstances and situation envisaged in section 47(xiii). This can be seen from the section 49 quoted below for ready reference:- ............................ ............................ On the basis of above similarity of situations contemplated in section 49 and explanation 2 to section 4....
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....n for the transfer of assets. However, in the case of smifs securities the consideration was actually paid. The relevant part of the judgement is given below [quote] 6. One more aspect needs to be highlighted. In the present case, the Assessing Officer, as a matter of fact, came to the conclusion that no amount was actually paid on account of goodwill. This is a factual finding. The Commissioner of Income Tax (Appeals) [CIT(A), for short] has come to the conclusion that the authorized representatives had filed copies of the Orders of the High Court ordering amalgamation of the above two Companies that the assets and liabilities of M/s. YSN Shares and Securities Private Limited were transferred to the assessee for a consideration: that the difference between the cost of an asset and the amount paid constituted goodwill and that the assessee-Company in the process of amalgamation had acquired a capital right in the form of goodwill because of which the market worth of the assesseeCompany stood increased. This finding has also been upheld by Income Tax Appellate Tribunal ['ITAT' for short]. We see no reason to interfere with the factual finding. [unquote] ....
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....partnership firm V.V. Vanniaperumal & Sons, Virudhunagar. The partnership firm V.V. Vanniaperumal & Sons, Virudhunagar carried on the business of manufacturing of gingelly oil under the registered brand name of 'Idhayam' and selling the same all over India and also involved in exports of the same. The promoters of the partnership firm i.e., partners became the directors and shareholders of the present assessee company in the same ration of holding, are in the same line of family business / group business for more than six decades. Before conversion of partnership firm V.V. Vanniaperumal & Sons into public limited company V.V.V & Sons Edible Oils Ltd., the transferor partnership firm valued all its assets and liabilities at net realizable value at Rs.86,97,13,000/- including the brand valued at Rs.60,24,10,640/- being intangible assets i.e. patents, trademarks and brand value registered in the name of 'IDHAYAM' and transferred the same to assessee company vide agreement dated 30.04.2008 entered into between V.V. Vanniaperumal & Sons, a partnership firm and V.V.V & Sons Edible Oils Ltd., a company incorporated under the Companies Act, 1956. The erstwhile partnership firm V.V. Vanniap....
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....ompany could have actually valued its brand in-total at Rs.158.74 Crs, but whereas in actual it is valued only at Rs.60.24 Crores (which is less than 40% of the total permitted valuation).This brand valuation of Rs 60.24 Crores and consequent disallowance of depreciation is under dispute in all these seven assessment years 2010-11 to 2016-17. 6.2 We noted that vide unregistered agreement dated 30.04.2008, the partnership firm transfer its business as a going concern and the same is between one form of taxable person i.e. firm to another form of taxable person i.e. the assessee company. The consideration for the same has been paid in the form of allotment of fully paid up equity shares of Rs.1.49 Crs. on the face value of Rs.10/- at a premium of Rs.48.37 per share issued to partners of the firm in the same ratio of capital contribution in the firm, who ultimately became the Directors or the shareholders of the assessee's company. 6.3 The first dispute between the assessee and the department is the brand value introduced in the balance sheet by the assessee's firm before conversion into a Public Limited Company w.e.f.30.04.2008. The assessee's contention was that before underta....
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.... findings of the AO and valued the goodwill at NIL. The ld.CIT-DR stated that though the so called brand value was brought into the books of accounts of the assessee company on 01.05.2008, but they debited the depreciation on brand value in the P&L A/c and added back in the computation of income for AYs 2009-10 to 2011-12. According to him, this is very strange that the company did not claim any deduction on account of claim of depreciation on the brand value for these three AYs. Strangely, the assessee company started claiming depreciation on brand value only from AY 2012-13. He argued that the ld.CIT(A) during appellate proceedings examined this issue in depth and held that there was neither goodwill nor brand value existed and hence, disallowed the claim of deduction in regard to depreciation on both of these non-existent intangible assets i.e. either 'Goodwill' or 'Brand Value'. According to him, the ld.CIT(A) upheld the disallowance of depreciation on brand value by invoking the 5th proviso to sec.32(1)(ii) of the Act. 7.1 The ld.CIT-DR stated that the provisions of Sec.32(1)(ii) of the Act, deals with deprecation on know-how, patent, copyright, trademark, licences, franchi....
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....e judgment of Hon'ble High Court of Karnataka vide order dated 17.07.2021 in SLP Appeal (C) Nos.13665 & 13745 of 2021. It means that the order of the tribunal as on the date holds the ground. The ld.CIT-DR heavily relied on the Tribunal's order in the case of Padmini Products Pvt. Ltd. (supra) stating that the Tribunal has considered the 5th proviso to Sec.32(1)(ii) of the Act and held applicable even in case of conversion of a partnership firm into a Private Ltd. Co. 8.1 We noted that the assessee has cited the case law of larger bench of this Tribunal i.e.Ahmedabad Bench, Third Member Case in the case of Chitra Publicity Co. (P) Ltd. v. ACIT [2010] 4 ITR (Trib.) 738 (Ahmedabad ITAT) (TM), wherein, the Tribunal has considered the issue of actual cost in terms of explanation-3 to Sec.43(1) and the relevant Paras of the order (majority order passed by Third Member) 14 to 18 reads as under: 14. I have carefully examined above circumstances/reasons, arguments and case law in support of application of Expln. 3 to s. 43(1) in this case. I have already commented upon circumstance (i) and on "satisfaction" of the AO that main purpose of transaction was to claim higher deprecia....
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....earned AM in the proposed order have made out a good case that the main purpose of transfer of asset was reduction of liability to income-tax (by claiming depreciation on enhanced cost). However, as already noted, recording of above satisfaction is not the main purpose of the Explanation. The real purpose of the provision is to authorize the AO to determine actual cost to the assessee. What is the meaning of the "actual cost" ? "Actual cost" is to be determined by the AO having regard to all the circumstances of the case. In other words, facts and material on record is to be considered in the process of determination of actual cost. Such cost cannot be any fancy or imaginary figure. This is clear from use of strong words like "determine" and check in the provision on arbitrary exercise of power by the AO. The AO is required to determine the actual cost with the previous approval of the Jt. CIT. Therefore, the AO has to satisfy Jt. CIT that exercise of determination of cost has been carried in a reasonable and proper manner. The provision of approval by the Jt. CIT is for the benefit of the Revenue and the assessee. It is to prevent the AO from taking any amount as "actual cost". ....
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....market value of the assets transferred being known on the date of transfer, the requisite inference under the proviso to s. 10(5)(a) of the Act cannot be drawn. But it is not as if the taxing authorities as well as the Tribunal have not dealt with this aspect of the matter at all while deciding the question of applicability of the proviso to s. 10(5)(a) to the facts of the present case." 17.1 It is, therefore, not possible to totally reject the concept of market value of the assets transferred as not relevant for determining "actual cost". The provision requires consideration of all the circumstances including cost in the hands of the transferor, WDV, inflationary trends, conditions and life of assets transferred etc. in the exercise of determination of cost of assets. It is true that cost shown in the transfer is primarily the cost to the transferee and such cost therefore, is a piece of good evidence. But cost shown is not final and AO is empowered under Explanation to revalue the asset and determine its actual cost. He has to determine the cost on some good and acceptable basis. In the present case, actual cost of hoardings and of goodwill has been taken at nil merely b....
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....ause a document in the nature of contract of purchase is entered into denoting a certain price the same would not conclusively establish the correctness of the claim made by an assessee if the AO is of the opinion that the transaction is by way of subterfuge or device in order to avoid tax which the assessee is otherwise liable to pay or that the transaction is illusory or colourable or that the assessee has acted fraudulently. In such circumstances, it would always be open to the AO to go behind the contract and ascertain the actual cost so as to determine the correct liability to tax." 18.2 In spite of the clear observations of the jurisdictional High Court, fully supported by other authorities and clear language that "AO is obliged"; "duty cast on AO" to determine actual cost of assets to the assessee, in the present case, the burden has been placed on the assessee to prove that actual cost of asset was the value it had claimed for the purpose of the depreciation. No attempt whatsoever was made by the AO or by the CIT who approved of his action or by CIT(A) to collect any material or to take any steps to determine the actual cost of the assets. The evidence produced by ....
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....count of wear and tear was to be examined. The list of circumstances is by no means exhausted and there can be other relevant circumstances required to be considered in the exercise of determination of actual cost of the hoarding. 8.2 After considering the provisions of Explanation 3 of section 43(1), 43(6) and 47(iii) of the Act, finally held as under:- 23. Proceeding to the question of actual cost of goodwill or trade name, it is well established that goodwill is an important asset of business which is acquired over a period of time. There are well-recognized methods of computing value of goodwill/trade name of a business. It is computed by taking into account profits made by the concern over a period, capital employed, efforts of the partner etc. and thereafter its value is determined. As per information placed on record, sales effected by the firm and the company are available at p. 73 of the paper book. The turnover of the firm in the last year of its business i.e. in financial year 2002-03 is shown at Rs.8,58,26,749. In the earlier two years also, it is more than Rs. 8 crores. It jumped upto Rs.11,67,00,000 in the first year of company's business and thereafter it....
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.... laid down by the jurisdictional High Court in the case of Ashwin Vanaspati Industries vs. CIT (supra), it is not possible to hold that provisions of Expln. 3 to s. 42(1) have been rightly applied. No good ground has been laid for not accepting cost fixed between the parties in the memorandum as "actual cost" of three assets. The power vested in the AO in Expln. 3 to s. 43(1) was not exercised in accordance with law. Without proper determination of "actual cost", it is not possible to record a satisfaction that assessee has claimed depreciation on enhanced cost of assets to the assessee. In view of close connection between circumstances/conditions (ii) and (iii) and in view of my finding on condition No. (iii), I hold that condition No. (ii) is also not satisfied. No case for taking action under Expln. 3 to s. 43(1) has been made out. On facts and circumstances of the case, there was no justification to remand the matter back to the AO to have another innings and determine actual cost of goodwill/trade name and of buildings at Rajkot and Surat. 26. I have also gone through the decision of Hon'ble Madras High Court in the case of CIT vs. Sekar Offset Press (1995) 214 ITR 51....
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....00 124,502,280 4,247,611 120,254,669 78,165,535 2010 11,894,939 11.00 130,844,329 21,056,130 109,788,199 71,362,329 2011 13,832,289 12.10 167,370,693 21,850,962 145,519,731 94,587,825 2012 15,601,812 13.31 207,660,118 16,744,194 190,915,924 124,095,351 2013 14,370,407 14.64 210,397,129 29,886,138 180,510,991 117,332,144 2014 to N 644,682,110 644,682,110 Total 1,130,225,294 Total (Rs. In Crs.) Rs.113 Crs From the above table, considering the actual sale quantity achieved for the years, along with perpetual results from 2014 onwards gives the the brand value at Rs.113crs, whereas what is actually considered for Gingely oil is only Rs.48.40 crs, which is approximately 42% of the total actual results / actual value made by the company, which clearly illustrates the actual performance was well ahead of the projection considered for the calculations.The relevant details are available in assessee's brand valuation report submitted by G.Sekar and Associates Chartered Accoun....
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....0 2018 542.33 4.47 11 2019 596.56 4.92 12 2020 656.22 5.41 13 2021 721.84 5.95 14 2022 794.02 6.55 15 2023 873.42 7.20 Total 7,307.67 60.24 8.5 We also noted the factual position that if we calculate the brand value on the basis of actual quantity achieved, it is estimated by the valuer at Rs.60.24 Crs. as under:- Summary of Values of Brand (See Annexure for Computation) S. No. Name of the Brand Amount (Rs.) 1 Idhayam Gingely Oil 484,025,086 2 Idhayam Gingely Oil Cake 95,394,034 3 Mantra Groundnut Oil 20,631,518 4 Mantra Groundnut Oil Cake 24,586,460 5 Sambandhi Ellu 28,593,510 6 SIM SIM Oil 14,260,329 7 Tahini 341,124 8 Wealth 1,091,324 9 DOTS 360,778 10 Hardil and Sarsol (Nominal Value) 60,992 Total Brand Value (for the entity as a Whole) 669,345,155 Less : Variance for Errors in Estimation 10% 66,934,515 Net Brand Value 602,410,640 Brand Value (in Crores) 60.24 8.6 Hence, according to us, the Revenue is unable to point out any defect in the brand valuation report, wherein ....
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....ssets, being know‐how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature." 10 Explanation 3 states that the expression "asset' shall mean an intangible asset, being know‐how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. A reading the words "any other business or commercial rights of similar nature" in clause (b) of Explanation 3 indicates that goodwill would fall under the expression "any other business or commercial right of a similar nature". The principle of ejusdem generis would strictly apply while interpreting the said expression which finds place in Explanation 3(b). 11 In the circumstances, we are of the view that "Goodwill' is an asset under Explanation 3(b) to Section 32(1) of the Act. 12. One more aspect needs to be highlighted. In the present case, the Assessing Officer, as a matter of fact, came to the conclusion that no amount was actually paid on account of goodwill. This is a factual finding. The Commissioner of Income Tax (Appeals) ["CIT(A)', for short] has come to the conclusion t....
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....nd value and assessee is eligible for claim of depreciation acquired from the partnership firm in lieu of allotment of fully paid equity shares to the partners of the partnership firm. We noted that the authorities below have wrongly applied the provisions of section 55(2)(a) of the Act, for determining the NIL value of the brand, which cannot be a case where all the materials was produced by the assessee before the authorities below and even now before us. According to us, the assessee has rightly computed depreciation on actual cost basis u/s.43(1) of the Act and not applied the provisions of Sec.55(2)(a) of the Act. Hence, we accept the value determined by the valuer at Rs.60,24,10,642/- and direct the AO to allow depreciation on the same as per law. 11. Consequent to the above findings as regards the brand value accepted at Rs.60,24,10,642/-, insofar as claim of depreciation although conversion of partnership firm into private limited company took place in financial year 2009-10, the assessee has claimed depreciation only from AY 2013-14 onwards. The assessee claimed that as per fifth proviso to section 32(1) of the Act, in the year of succession he cannot claim depreciation....
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....V.V. Vanniaperumal Charities and V.V. Vanniaperumal Primary School Charity Trust, properties of M/s. V.V. Vanniaperumal Charities, the expenditure cannot be allowed in the hands of the assessee company as the assets are not utilized for the purpose of business of the assessee. Therefore, the AO disallowed a sum of Rs.8,01,050/- by including the cost of cement at 40% and cost of steel at 40% estimated by the AO. 13.1 Similarly, the assessee claimed construction expenses of Rs.6,42,404/- being construction expenses for running kindergarten school in the name of Tulir School and managed by M/s. Idhayam Rajendran Charities. The AO noted that the kindergarten school was run in the building and the school had vacated the premises long back and therefore building is vested with Shri V.R. Muthu in its individual capacity. The AO noted that the construction expenditure incurred by assessee company is capital in nature as the land is not owned by assessee company and ownership of the same does not vests with it. Therefore, the contract value of Rs.6,42,404/- and thereby enhancing the same by cost of cement at 40% and cost of steel at 40%, estimated the total cost of construction at Rs.10,....
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....s construction of building for Tulir School and managed by M/s. Idhayam Rajendran Charities. However, current occupant as mentioned in order is Shri V.R. Muthu. Thus apparently this expenditure is done by appellant on behalf of somebody else - a related party. The assessing officer has held that this not for the business of the company. The appellant company is engaged in business of selling of gingerly oils etc., it is not in schooling business, nor it is establishing a school in under its own ownership. The MOU states that it establishes and carries on educational institutions but that implies it should do it on its own. The building does not appear in the balance sheet. The present act of getting a building constructed on behalf of somebody even though a related party is actually an act of donation and an act of application of income hence the same cannot be allowed as expenditure. The addition made by the assessing officer is upheld. Aggrieved assessee is in appeal before the Tribunal. 14. We have heard rival contentions and gone through facts and circumstances of the case. The brief facts explained by the assessee are that the unit 'Anbu Illam' commenced during the y....
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....colleges where students may obtain on moderate terms a sound religious, musical, ethical, classical, mathematical, technical and general education of highest order, subject to the approval of the appropriate authority. The assessee also incurred an expenditure of Rs. 6,42,404 and the Assessing Officer made an adhoc addition of Rs. 4,28,269 towards cost of cement and steel and in aggregate disallowed an expenditure of Rs.10,70.673. We noted that one of the objectives of the company is "to establish and carry-on educational institution, schools and/or colleges where students may obtain on moderate terms a sound religious, musical, ethical, classical, mathematical, technical and general education of highest order, subject to the approval of the appropriate authority".The assessee company has completed its 50th golden year in 1996 and the company established its factory in Villipathiri in 1992, and another factory in Varalotti in 2002 which is 4 kms away from Villipathiri. Accordingly, to provide quality education to the children of more than 850 employees of the company, RJ Thulir Kinder Garden was started in the existing rented godown premises of the company. The school was started w....
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.... the assessee under section 68 of the Maharashtra Cooperative Societies Act, 1960 for the education fund created for the purpose of the education of the children of the employees is held to be deductible. Since the issue is exactly identical here also, the assessee company has constructed the building for running a school in the vicinity of the factory building for the children of the employees of the assessee company. This according to us, is allowable expenditure and we direct the AO accordingly. This issue is arising in all the 7 assessment years in regard to construction expenses of 'Anbu Illam', construction of 'R.J. Mantra Tulir School' and interest on loan taken for construction purposes for the building of R.J.Mantra English School, is allowable in all these assessment years. We direct the AO accordingly. 15. The next common issue in all these 7 appeals of assessee is as regards to the order of CIT(A) confirming the action of AO in making disallowance of expenses relatable to exempt income by invoking the provisions of section 14A read with Rule 8D of the Income Tax Rules, 1962. 16. Brief facts are that the assessee has received dividend income and claimed as exempt i....
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.... order is based on the very first year i.e., AY 2012-13 and the order of CIT(A) is a common order for all the years. Hence, we will take the facts from assessment year 2012-13 and will decide the issue. The relevant ground raised by assessee reads as under:- 5. SHIFTING OF PROFITS TO SISTER CONCERN The Apex court in the case of Union of India vs. Azadi Bachao Andolan held that while a colourable means have resulted in a sham transaction that does not mean that tax planning would not be allowed as per law. 19. Brief facts are that the AO during assessment proceedings noticed from the sale ledgers, bills and vouchers and accounts of the assessee that the assessee company is selling gingely oil cake and groundnut oil cake to third parties through their sister concern M/s. Rasathe Garments. The AO noted that M/s. Rasathe Garments is engaged in the business of manufacturing and sale of garments and partners of the Rasathe Garments and that of the assessee company are one and the same and functioning from the same premises at No.443, Main Bazaar, Virudhunagar. The AO noted that the firm Rasathe Garments is a loss making entity and never paid income-tax since its ince....
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....ee, Shri Vadivel look after the sale of Gingelly Oil, groundnut oil, Gingelly and ground nut oil cakes, etc. They used to get orders for oil cakes from the parties over phone. They prepared sale bills for V.V.V and Sons Edible Oils Ltd, and Rasathe Garments. He further stated that on receipt of order for sale of oilcake received from traders in a day, a single sale bill is raised by V.V.V and Sons Edible Oils Ltd., in the name of M/s Rasathe Garments and subsequently required number of bills are prepared in the bill books of M/s Rasathe Garments to various parties on the same day. However, goods are delivered by the assessee-company from its factory premises. Shri G.Vadivel, Senior Officer in his sworn statement recorded on 25.04.2016 affirmed that he has been working as an employee of M/s V.R.Muthu & Bros., for the past ten years. He further stated that he assisted Shri N.Durairaj, Manager of V.V.V. & Sons Edible Oils Ltd., in the sale of Gingelly and groundnut oil and oilcakes. The statement deposed by him affirms on the same lines given by Shri N.Durairaj. 19.1 Further, the AO noted that the entire sales carried out through its sister concern M/s. Rasathe Garments is on credi....
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....m's length price through the distribution firm which has been separately assessed to tax i.e., income-tax as well as VAT. The ld.AR stated that even the Revenue for assessment year 2014-15 has accepted the Arm's length price declared by the firm M/s. Rasathe Garments u/s. 92CA(1) of the Act. The ld.AR agreed that 'yes' there are common place of working, common directors and partners of the assessee's sister concern and the assessee company itself. He stated that these are two distinct and different entities separately assessable, can have common partners and directors and there is no bar either in the Income-tax Act or in the Companies Act. The ld. AR stated that once the transaction is at Arm's length and the AO has nowhere stated that the sales price by the assessee and consequent purchase price of the assessee's sister concern M/s.Rasathe Garments is excessive or unreasonable, no disallowance can be made. According to ld.AR if at all disallowance is to be made that is to be made in the hands of the assessee's sister concern if at all it seems excessive or unreasonable because the whole of the Income-tax Law provides for disallowance if the expenditure is excessive or unreasonabl....
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....e of Ground nut oil cake and Gingelly oil cake were made through book entries only. The search operation has resulted into a finding that the firm Rasathe garments had incurred huge loss over the period time and to set off the profit of VVV sons (appellant) such arrangements were made. The modus operandi has been discussed elaborately by the Assessing Officer on the basis of seized material in the assessment order. 21.2 The ld.CIT-DR with regard to evidences from accounts of Rasathe Garments submitted that that the evidences available from financials and Tax audit report of Rasathe Garments is obtained from the AO and placed on record for better appreciation of the modus operandi detected. The tax audit report uploaded or filed along with the return of income of Rasathe Garments is placed as annexure-1 from page number 1 to 23, had revealed a fact that the nature of business reported year after year was Manufacturing (others) under the business code of 0124. This had revealed a fact that the firm was not a genuine trader of Oil cakes. The business code has been published every year for the purpose of filing of tax returns. It is enclosed as annexure-2 in and placed at page numbe....
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....ith the sole intention to shift the profit. 22. We have heard rival contentions and gone through facts and circumstances of the case. We noted the facts of the case that the assessee company is in the business of manufacturing, sale and export of edible oil i.e., gingelly oil and groundnut oil etc. In the group cases one more concern M/s. Rasathe Garments, a registered partnership firm is engaged in the trading of garments and also distributor for the assessee company distributing the gingelly oil cake and groundnut oil cake as sole distributor. It is also one of the group concerns and the directors of the assessee company and the partners of the Rasathe Garments are common and family members of the group. The assessee has appointed this partnership firm Rasathe Garments as distributor for the reason that Rasathe Garments will carry out the distribution business of gingelly oil cake and groundnut oil cake and it will create convenience for the assessee to maintain the records both assessee as well as the partnership firm Rasathe Garments are separate taxable entity, both assessed to income-tax as well as to VAT. There is no dispute about the sale of goods by assessee company to ....
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....hat the addition made by AO and confirmed by CIT(A) on account of shifting of profit of the assessee company to its sister concern M/s. Rasathe Garment, a partnership firm is without any basis and hence, deleted. For all these 5 assessment years, the additions made are deleted and the issue of assessee appeals is allowed. 23. The next issue raised by assessee in ITA No.2277/CHNY/2019 for assessment year 2012-13 is as regards to disallowance of foreign tour expenses of Rs.13,89,450/-. For this, assessee has raised the following ground:- FOREIGN TOUR The Supreme Court in CIT vs MALAYALAM PLANTATIONS LTD 1964 53 ITR 140 has observed The expression for the purpose of the expression for the purpose of earning profits The purpose shall be for the purpose of the business that is to say the expenditure incurred shall be jor the carrying on of the business and the assessee shall incur it in his capacity as a person carrying on the business Working through the year one really needs a break and a vocation (business) travel The Apex Court in Gordon Woodroffe Leather Mfg Co vs CIT 1962 44 ITR 551 has given the following three tests in allowing or disallowing paymen....
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....f the assessing officer for disallowing the expenditure. Hence the disallowance made is confirmed. 25. Even now before us, the assessee could not substantiate how this foreign tour expense is in relation to business income or for the purpose of business. In the absence of any explanation, we confirm the order of CIT(A) and dismiss this issue of assessee's appeal. ITA No.1765/CHNY/2019, AY 2009-10 26. This appeal by the assessee in ITA No.1765/Chny/2019 is arising out of the Revision order passed by the Principal Commissioner of Income-Tax, Central-2, Chennai u/s.263 of the Act in C.No.2744/C-2/2018-19, dated 28/03/2019. The assessment was framed by the ACIT, Central Circle-2, Madurai u/s.143(3) r.w.s. 147 of the Act for the assessment year 2009-10 vide order dated 31.12.2016. 27. At the outset, it is noticed that the appeal filed by the assessee in ITA No.1765/CHNY/2019 is barred by limitation by 5 days. The order of PCIT dated 28.03.2019 was received by assessee on 02.04.2019 as per Form 36 but appeal was filed only on 06.06.2019 with a delay of 5 days. The assessee has filed an affidavit stating the following reasons: "i. Accounting staff of the succeeding Co....