TaxTMI 
TaxTMI 
2023 (5) TMI 1091
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....ing total income of Rs. 3,84,710/-. It was processed under section 143(1) of the Income Tax Act, 1961 (the "Act") and the case was picked up for scrutiny. Notices under section 143(2) and 142(1) along with detailed questionnaire were issued and compliance were made. The Ld. Assessing Officer ("AO") completed the assessment under section 143(3) of the Act on 28.12.2006 on total income of Rs. 6,29,12,450/-including therein following additions/disallowances : (1) Trading addition profit from baddi unit - Rs. 25,60,525/- (2) Addition under section 40A(2)(a) - Rs.17,52,728/- (3) Addition on account of unexplained expenditure- Rs. 10,00,000/- (4) Expenses disallowed - Rs. 28,81,913/- (5) Disallowance out of R & D expenses - Rs. 40,62,606/- (6) Refund accrued out of excise duty paid - Rs. 42,81,469/- (7) Addition made on account of wastage - Rs. 13,43,584/- (8) Proportionate interest paid to bank and others disallowed- Rs. 48,99,034/- (9) Disallowance out of unsecured loans - Rs. 34,33,200/- (10) Disallowance out of sundry creditors - Rs. 1,02,56,704/- (11) Expenses not relating to business ....
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....ed by assessee, the excise duty refund sanctioned by Excise Department was required to be credited in P&L account which the assessee failed to do so. Point No. 7 :-Wastage (Rs. 13,43,584/-) On the facts and circumstances of the case, the Ld. CIT(A) has erred in allowing the relief of Rs. 13,43,584/-on account of wastage out of manufacturing activities, and the raw material consumed and other details of finished products were not produced for examination which were duly examined by the AO and the Ld. CIT(A) has erred in not appreciating the complete facts brought out by the AO in the assessment order. Point No. 8 Proportionate interest paid to Bank & others disallowed (Rs. 48.99.034/-) On the facts and circumstances of the case, the Ld. CIT(A) erred in deleting the disallowance of Rs. 48,99,034/-on interest bearing loan taken by the assessee from M/s North Eastern Development Finance Corporation Ltd. and was utilized by M/s OPL, a sister concern of the assessee without getting any interest, which was wrongly allowed as expenses. Point No. 9 Unsecured loans (Rs. 34,33,200/-) On the facts and circumstances of the case, the Ld. CIT(....
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.... at Baddi and Guwahati are engaged in manufacture/ production of similar/identical products. (c) Mismatch of sales disclosed ini the Books of account and the sales disclosed before sales tax authorities and excise authorities. (d) Substantial differences in the opening and closing stock, stock transferred/sales as declared in the Books of accounts and excise records made available by the assessee. (e) Non furnishing of complete details regarding separate trading account and Profit and Loss account of Guwahati unit and Baddi Unit. (f) Non furnishing of complete details regarding month wise, item wise raw material purchased, raw material consumed and production made from Guwahati unit and Baddi unit. (g) Non furnishing of month wise expenses incurred at Guwahati unit and Baddi Unit. (h) Non furnishing of evidence of installation of new plant and machinery at Guwahati unit. (i) Non furnishing of evidence in support of power consumption and allocation of power to different units. Even the electricity bills were not produced for examination. (j) Comparative analysis of the raw material consumed found to be the same ....
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....ejecting the books of account which were accepted and vetted by other statutory authorities i.e. excise, sales tax, ESIC, PF, Drug Deptt., Factory Act without any negative remarks and by passing various orders under their respective Acts. Further, Guwahati unit is availing excise exemption, enjoying transport subsidy, power subsidy, labour subsidy, sales tax exemption and therefore, the expenses are lower as compared to expenses incurred at Baddi, and moreover Guwahati unit has new machines while Baddi unit has old machines. The machineries installed at Guwahati unit are more capable and high tech as compared to machineries installed at Baddi unit. 8.3 It was submitted that Guwahati unit and Baddi unit are different. Guwahati unit produced for local markets with automatic technology and Baddi unit is producing with semi automatic plants mainly for exports, and hence GP ratios are not comparable. The Hon'ble Tribunal in its order dated 27.02.2009 for AY 2003-04 held that rejection of books was not justified. Affidavits sworn by the advocate and by the CA deposing on oath that complete books of account was produced which were examined by the Ld. AO were also filed before the L....
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....e analysis of the raw material consumed according to formulas of various products manufactured by the appellant. iii) Failed to produce any evidence of the quantum of manufacturing/production done of different products. - Allegation of the A.O. is contrary to records as the appellant has furnished all requisite information as was available with him. iv) Failed to provide the terms and conditions on which the alleged sales/purchases and expenses have been shown in the profit and loss account and trading account. - Nothing adverse has been brought on record by the A.O. v) In spite of several opportunities, failed to produce complete books of accounts at three different occasions (a) during the initial assessment proceedings before invoking the provisions of special audit (b) before the special auditor (as distinguishably established by the special auditors) and (c) before the assessing officer who passed the assessment order u/s 143(3). - It is seen from the records that in the present assessment year under appeal there was no special audit, thus I do not find that the appellant was to produce books before any Special Auditor. Furthermore, in the o....
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....ks of account by invoking provisions of section 145(2) of Act, for the various discrepancies enumerated in the assessment order: - These discrepancies enumerated do not give any specific instances on the basis of which action of the A.O. can be substantiated. xii) Bogus expenses booked in the trading account:- In the absence of any specific instance brought on record by the A.O., it cannot be held so. xiii) Suppression of sales, no stock register maintained, no manufacturing account maintained, day to day production register and incomplete audit report. - No specific instance is brought on record by the A.O. to show suppression of sales. Observations of A.O. w.r.t. production/ non-production of records are self contradictory. xiv) Complete books of accounts not produced for examination - A.O. has not specified which books were not produced, and what he means about complete were books, when he himself says that books of accounts were produced , were examined, and subsequently he rejected the same as well. xv) Sale and purchase are erratic and ill-logical prices undertaken between sister concerns; - No instance has been brought on record by the A.O....
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....k register, RG-23 Register, Sales Tax record, Octroi Record, Transport bills, wages payment register, purchase and sales vouchers, etc. It was also explained that the two sets of undertakings are at a distance of 2300 K.M. and the production is with different technology and on different v scales in both the units. 4.44 Though the Ld. CIT(A) did not agree to the submissions made by the appellant with regard to rejection of books, but he held that the estimation of the profits of the Baddi unit should have been based on the gross profit ratio rather than the net profit ratio, and also held that for the purpose of adoption of profit ratio, the Guwahati unit is not comparable to the Baddi unit. On further appeal, the Hon'ble ITAT, while deciding the issue, held at page 140-141 of their order (Refer PB 1115-1116) as under:- 4.45 "The reasons mentioned in the order of the lower authorities do not lead to a conclusion that there were evidences or attendant circumstances in the nature of omission of entries of purchase or sale or suppression of stock etc. which could lead to rejection of books of account. The assessee had maintained complete books, which were produced....
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....the assessee maintained complete books of accounts as in the preceding AY 2003-04 which was rejected by the Ld. AO under section 145(3) of the Act. However, the Tribunal in its order dated 27.02.2009 for AY 2003-04 held that the assessee had maintained complete books which were produced before the statutory auditors as well as the Ld. AO. Therefore, the books of account could not have been rejected under section 145(3). There was no decline in GP rate as compared to the immediately preceding year. No justifiable reason has been brought on record to apply NP ratio on declared sales in Baddi unit. The impugned addition has rightly been deleted by the Ld. CIT(A). We, therefore, reject this ground of the Revenue. Ground 2: Disallowance of expenses debited to P&L account -Rs. 28,81,913/- 8.6 The Ld. AO discussed this issue in para 37 page 21 of his order. Observing, inter alia that the expenses are not verifiable for want of bills, vouchers etc., the Ld. AO made the impugned disallowance out of sales promotion, marketing expenses, repairs and maintenance, telephone expenses, vehicle running and maintenance, travelling expenses, general expenses, preliminary expenses written off, b....
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....s, he made the impugned disallowance. 8.12 The Ld. CIT(A) dealt with this issue in para 8 page 52-54 of his appellate order. It was submitted by the assessee that the assessee is having an in-house R&D Centre at Bahadurgarh for its own products which is utmost need to meet the competition and to improve efficiency and effectiveness of the product and for development of new products. The Ld. AO made the disallowance without appreciating the business expediency. The assessee has employed 8 or 9 persons in R&D division. Copies of employment letters of the persons, their Form No. 16 were furnished. The Ld. CIT(A) examined them and found that salary amounting to Rs. 18,00,181/- had been paid to them. In para 8.14 of his order, the Ld. CIT(A) recorded his findings as under:- "8.14 Considering the facts of the case, nature of business carried on by the appellant, and the nature of expenses incurred, and more so when the A.O. has not pointed out any discrepancy in any of the expenses incurred under this head, and the silence of the A.O. in the remand report on this issue, it is not proved as to how the claim of the appellant is not allowable. The absence of any adverse comments....
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.... of the appellant. I have gone through the findings of the AO in the impugned assessment order and remand report. I have also examined the order of the Assistant Commissioner, Central Excise, Bhangagarh, Guwahati dated 18.10.2001 (PB 229-230), according to which Guwahati Unit of the appellant is eligible for the benefit of exemption of excise duty by way of refund to the extent of duty paid through personal ledger account for the products allowed to be manufactured and cleared from the said unit for a period not exceeding 10 years w.e.f. 30.5.2001 i.e. from the date of commencement of commercial production or till the breach of any of the terms of the said notification or the related Acts / Rules for the time being in force subject to PMT and relevant notification having been in force. The amount of excise duty paid is shown at PB 84 of the paper book, which is Excise duty account, and the account shows a debit balance (expense) of Rs. 42,81,469/- which infact has been added by the A.O., and which is part of the Profit and Loss A/c. PB 85 is copy of ledger account of Excise duty payable. It is seen that this account is credited by the excise duty payable first, and when the excise ....
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....l be reduced by Rs.42,81,469/-." 8.17 The Revenue's case is that under the accrual system of accounting followed by the assessee, the excise duty refund sanctioned by excise department was required to be credited in P&L account which the assessee did not do. 8.18 We do not agree. The assessee pointed out that the AO misappreciated and misunderstood the facts of the assessee's case. He picked up the figure of Rs. 42,81,469/- from P&L account of Guwahati unit wherein the said amount was debited under the head 'manufacturing expenses'. The Ld. AO incorrectly interpreted that the said amount was refundable by excise department to the assessee and should have been shown as income which was not done. In fact, the assessee was not entitled to refund of excise duty paid on the amount of purchases (input) and the assessee asserted that no such amount has so far been received by the assessee. We concur with the finding of the Ld. CIT(A) that the claim of the assessee is bonafide. Since similar claim in the preceding year was allowed, we do not find any reason for the impugned addition which has rightly been directed by the Ld. CIT(A) to be deleted. Accordingly, we rejec....
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....of no use and also were not in saleable position in the market. The appellant is justified in making the assertion. It is difficult to imagine that in such manufacturing systems there would not be any wastage, either because of mishandling or because of disproportion. The AO has not brought on record any material to contradict the stand of the appellant and to justify the reasons to disbelieve the factum of normal wastages in such a manufacturing unit. Considering the circumstances and facts explained by the appellant, I do not find any reasons to uphold the addition made by the AO in the absence of any specific reason given to make the impugned addition. In view of the discussions made, the addition made of Rs. 13,43,584/- is hereby deleted. This ground of appeal is decided in favour of the appellant." 8.21 We observed that no addition on account of wastage was made in the preceding AY 2003-04 or in the succeeding AY 2005-06 though similar claim of wastage was made in those years also. For AY 2006-07 as well no such addition was made. The assessee explained that due to hot mixtures filled in the tubes, the tubes get leaked which were of no use and not saleable in the market. We....
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....Pharmaceuticals Limited has been brought on record by the A.O. As per these details, secured loans are reduced to Rs.2,20,14,879/- as compared to the immediately preceding year's figure of Rs.3,31,99,717/-. It is further observed that during the year the appellant has received fresh term loan of Rs.40,56,272/- from Standard Chartered Bank, which has been utilised by the appellant for business purposes. Moreover, the A.O. has also not been able to bring on record any specific adverse finding for this loan or any other loan obtained during the year by the appellant. It has been further argued by him that on one side the A.O. has mentioned that the appellant has transferred the sum to M/s. OPL while in Para 49 of the impugned order, he has discussed about deemed dividend u/s 2(22)(e), alleging that the appellant has received the funds from M/s. OPL. The Ld. Counsel stated that in fact the appellant has sold products to M/s. OPL and against the supplies made, received the payments. The other increase in secured loan is in respect of term loan from NEDFI at Guwahati which has increased to Rs. 18,00,076/- as compared to Rs.7,80,076/- in the immediately preceding year, which proves th....
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....e examined the impugned order, the remand report, and also considered the submissions made by the Ld. Counsel, and averments made in the rejoinder filed. The A.O. has not offered any comment in his report on this addition made in the assessment order. The Ld. Counsel referred me to various confirmations filed and placed at PB 432 to 444 of the paper book which are confirmations in respect of other unsecured loan creditors. After examining all these, I have also examined the balance sheet filed by the appellant. It is seen that as on 31.3.2003 there were outstanding unsecured loans of Rs.76,95,000/- which included Security from C&F agents & Stockists at Rs.65,00,000/- and others as Rs. 11,95,000/-. It was explained that inadvertently some of the unsecured loans were wrongly included in the figure of unsecured creditor, and as such the figure was shown at Rs. 11,95,000/-. The details are available at PB 112 and PB 409. It is seen that infact there are fresh unsecured loans of Rs. 10,13,200/- which includes loan of Rs. 10,00,000/- from Smt. Anupama Verma raised by the appellant during the year, for which confirmation has also been filed by the appellant. From these details filed it ha....
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....addition can be made for unsecured loans as has been done by the A.O. in the impugned order before me." 8.28 We concur with the finding of the Ld. CIT(A) that addition cannot be made for the unsecured credit balances brought forward. For the new unsecured loan obtained by the assessee, confirmation was brought on record. The creditor confirmed having advanced the loan; copy of ITR and bank statement was filed in support. The impugned addition is totally unjustified and the Ld. CIT(A) has rightly deleted the same. The Revenue's ground is rejected. Ground 8 : Disallowance out of sundry creditors - Rs. 1,02,56,704/- 8.29 The Ld. AO discussed this issue in para 44 at page 29 of his order. The Ld. AO observed that the assessee has shown a sum of Rs. 1.02,56,704/- as sundry creditors in the balance sheet. The assessee did not furnish complete details of name and address of sundry creditors, the genuineness of trade transactions supported with bills and vouchers. Complete books of account have never been produced for examination. Complete confirmation has not been filed nor the persons have been produced for examination. A few confirmations filed have incomplete details. With....
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.... PANs etc. of the parties to the Assessing Officer on 16.5.2008 (Refer PB 454) wherein he specifically asked the A.O. to inform in case any further information was required by him in respect of the sundry creditors. Ld. AR further stated that similar details were again asked by the A.O., and the appellant furnished the same again before the A.O. (now placed in paper book at PB 525 to 803 which consists of confirmations from various sundry creditors, and the copies of ledger accounts of the appellant in their books). Ld.AR further stressed that the A.O. also made independent verifications from various sundry creditors, which were also replied to by them directly. The A.O. could bring no specific incidence on record where any of the parties would have not confirmed the balance. No adverse comments were offered by the A.O. in his remand report on this issue. It is observed from all these details and evidences furnished, that the Assessing Officer after examining all the details furnished by the appellant, neither during the course of assessment proceedings, nor during the course of remand proceedings, specifically asked for any particular sundry creditor who was not found genuine in t....
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....uwahati unit. The expenditure was incurred on account of furniture for guest house where Shri Dipak Singh resided. The assessee is paying rent of the guest house which is wholly for the business purposes. The Ld. CIT(A) deleted the impugned disallowance with the following observation and findings :- "15.5 I have considered the submissions made by the authorized representative of the appellant company and the observations made by the A.O. in the impugned order. It is seen from the profit and loss account that no such expense has been debited to profit and loss account which might affect the profit declared. The AO has infact taken this amount from the amount spent on addition made to assets. In any case, the AO could have disallowed the depreciation, if he was not satisfied with the explanation given by the appellant. Ld. AR explained before me that the amount was spent for purchase of furniture for one of his employees at Guwahati unit, and the asset was for official use of the appellant. It is not denied that the appellant is running its unit at Guwahati. Merely because the appellant has purchased an asset for the same which is being used in a remote are by an employee of....
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.... not fulfilled any of the other above conditions. 8.36 According to the Ld. AO Guwahati unit of the assessee is result of splitting of existing unit. Similar products with similar unit with similar composition and size have been manufactured/produced from two units, i.e. Baddi unit and Guwahati unit at the same time. In the absence of evidence it is not established that altogether new machines have been purchased for setting up of unit at Guwahati. The assessee has not fulfilled the condition of manufacturing or production of a new thing ready for commercial exploiting as supporting evidence has not been produced. Regarding employment of manpower, the Ld. AO stated that salary certificate, appointment letter, attendance register, ESI / PF certificate or any other proof for specifying the number of employee is as per the specified number have not been produced. 8.37 Before the Ld. CIT(A), the assessee vide letter dated 16.04.2008 made submissions which are incorporated in the appellate order in paras 20.15 to 20.85. Thereafter the Ld. CIT(A) recorded his findings in para 80.86 to 80.93 thereof. We have perused the contentions of the assessee raised in the rebuttal of the Ld. A....
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....al in respect of the exports. We are also of the view that the results of the two units are not comparable and in any case if the deferred expenditure of advertisement of about Rs.8 crores, which has already been discussed by us and higher advertisement expenses in the Baddi unit are taken into account, then, there will be hardly any difference in the working of the two units. We may hasten to add that such a comparison is not a material factor for grant of deduction u/s 80IB. The fact of the matter is that the A. O. merely reproduced comparison and comments made by the statutory auditors and proceeded to make assessment on that basis without examining the issue independently on his own. Thus, it is held that his conclusion in this behalf was not based on any evidence on record. " 20.92 From the above, it is clear that the ITAT has discussed all the conditions which are relevant for claim of deduction u/s 80IB of the Act and held that the appellant is entitled to deduction u/s 80IB. During the course of present proceedings for the impugned year also, the appellant has been asked to file the documentary evidence in support of the condition laid down as per section 80IB(2)(i....
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....red in deleting the disallowance u/s 80IB ignoring the fact that Guwahati unit was formed by splitting up or reconstruction of business already in existence at Baddi Unit. (3) That on the facts and circumstances of the case and in law the Ld CIT(A) erred in following the order of earlier years and in holding that comparative analysis of financial results, product details, unreasonable profitability difference etc. of the units at Guwahati & Baddi were not relevant to the issue under consideration as the AO had not invoked Section 80IB(13). That even if section not specifically mentioned, the AO had held at a number of places during this year that the profit of Guwahati unit was highly inflated by among others shifting of Guwahati unit expenses to Baddi unit on one hand and by shifting turnover of Baddi unit to Guwahati unit which is prohibited by various provisions of section 80IB of the Act. (4) That on the facts and circumstances of the case and in law the Ld. CIT(A) erred in deleting disallowance of various expenses amounting to Rs. 86,00,000/- without appreciating the fact that the assessee has failed to justify that the expenses were incurred wholly and exclu....
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....in the Tribunal after noticing the facts on record held that "all these facts lead to an inescapable conclusion that the Guwahati unit was newly set up with new machinery for production of ayurvedic medicines. In view thereof, we are not in opposition to uphold the findings of the assessing officer that the business of Baddi unit was carried out from the Guwahati unit. Thus we tend to agree with the Ld. CIT(A) in the matter, and it is held accordingly." 10.4. The Ld. CIT(A) also quoted the observations of the Tribunal on the number of workers employed and on maintenance of books of account and finally recorded his findings as under :- "From the above, it is clear that the ITAT has discussed all the conditions which are relevant for claim of deduction u/s 80IB of the Act and held that the appellant company is entitled for deduction u/s 80IB. During the course of present proceedings, the appellant has been asked to file the documentary evidence in support of the condition laid down as per section 80IB(2)(iv) in response to which the appellant company filed copies of wages register of Guwahati Unit for full year along with copies of return of the Provident Fund which shows....
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..... AO for the impugned disallowance on page 22 of the appellate order which mainly consist of non production of bills and vouchers and books of account. The Ld. CIT(A) observed that no disallowance can be made as the Ld. AO has failed to indicate any instances where the expenditure is proved to be either bogus and/or of non-business in nature. He further observed that order-sheet notings nowhere suggested that the Ld. AO specially called for books of account to be produced for verification of expenditure along with the supporting documents. We agree with the findings and observations of the Ld. CIT(A) that ad-hoc disallowance of expenditure is not sustainable and accordingly reject ground no. 4 and 5 of the Revenue as well. 10.7. Ground no. 6 relates to disallowance of Rs. 29,72,725/- account of interest paid to banks made by the Ld. AO which has been deleted by the Ld. CIT(A). Briefly stated the Ld. AO noticed that the assessee has given loan of Rs. 57,41,224/- to M/s. Fourth Dimensions Media Ltd., a sister concern on which the assessee did not charge any interest whereas the assessee paid interest on capital loans taken from banks. He, therefore, disallowed 50% of interest paid....
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.... unit expenses to Baddi unit on one hand and by shifting turnover of Baddi unit to Guwahati unit which is prohibited by various provisions of section 80IC of the Act. 5. On the facts and circumstances of the case and in law, the Id. CIT(A) has erred in deleting disallowance of various expenses amounting to Rs. 10,00,000/- without appreciating the fact that the assessee has failed to justify that the expenses were incurred wholly and exclusively for the purpose of business and more so for the legitimate needs of the business. 6. On the facts and circumstances of the case and in law, the Id. CIT(A) has erred in allowing expenses of Rs. 10,00,000/- disallowed by the assessing officer under various heads by simply following the decision of earlier year without appreciating the facts of this year and also erred in failing to appreciate the fact that no bills wore produced to support the expenditure and failed to show the purposes for which the expenditure were incurred. 7. On the facts and circumstances of the case and in law, the Id. CIT(A) has erred in deleting Le disallowance of Rs. 13,52,427/- made by the Assessing Officer on account of interest paid to ba....
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.... of any article or thing and other conditions specified therein are fulfilled. 4.1.5 Under the new provision of sec 80IC, there is no restriction regarding number of workers to be engaged in the industrial undertaking. Therefore, disallowance of deduction u/s 80IC by the AO on the ground that required number of workers were not engaged in Guwahati unit, is erroneous and disallowance on this ground cannot be sustained. Although the number of workers being engaged is not a requirement, however, from the daily attendance register, Provident Fund & ESI contribution forms, it is observed that more than 100 workers were engaged in Guwahati Unit in the relevant previous year. It is also note worthy that the appellant by its submission dt. 30.11.2011 produced the wages register of the units at Guwahati along with certificates of EPF and Inspector of factories as an evidence of workers engaged in the Guwahati Unit. 4.1.6 On the issue whether the industrial undertaking is engaged in production of any article or thing during the relevant previous year, AO called for evidence in respect of deduction claimed under chapter VIA as per questionnaire dt. 20.07.2011 and trading res....
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....hat the assessee has not produced complete books of account; that it was not proved that expenses incurred were wholly and exclusively for the purpose of business and that these were not supported by bills. 12.5. On appeal, the Ld. CIT(A) noted that similar disallowance was made in preceding last five years which were deleted by the Ld. CIT(A) as the additions were made on ad-hoc basis and nothing adverse was brought on record by the Ld. AO. In AY 2009-10 also similar disallowance has been made by the Ld. AO without bringing on record any specific adverse material which cannot be sustained. He deleted the impugned disallowance. 12.6. We are of the considered view that ad-hoc disallowance without bringing on record any adverse material is not sustainable. We observe that the Ld. AO required the assessee to produce the vouchers for the month of March, 2009. The assessee complied and the Ld. AO verified the same on test check basis but no defect was found. Therefore the impugned disallowance is not justified and hence has rightly been deleted by the Ld. CIT(A). Accordingly, we reject ground No. 5 and 6 of the Revenue as well. 12.7. Ground No. 7 and 8 relate to disallowance of....