TaxTMI 
TaxTMI 
2023 (11) TMI 282
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.... the A.O. treating the same as not paid for the business of the assessee, without appreciating that the conditions laid down by the ITAT in its directions to the AO while setting aside the matter, have not been fulfilled by the assessee". 1.1 "Whether on the facts and in the circumstances of the case, the Ld. CIT(A) is justified in deleting the addition of Rs. 33,65,154/- made by the AO being the amount of corporate services charges paid to Ambalal Sarabhai Enterprises Ltd, the holding company, without giving an opportunity to examine additional evidences to the AO?" 2. "On the facts and in the circumstances of the case and in law the learned CIT (A) erred in deleting the addition of Rs. 1,00,00,000/- being the amount of services charges paid to Sarabhai Common Services, a division of the holding company, which was disallowed by the A.O. under section 40A(2)(b) of the IT. Act, treating the same as not paid for the business purpose of the assessee, without appreciating that the assessee failed to provide the details so as to examine the basis of rate charged by M/s.Sarabhai Common Services for various services and to verify the method adopted by Sarabhai C....
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....available. In such circumstances, having regard to ratio of decision in the case of Purushottam Khatri 312 CTR 323 (SC), adverse view should not be taken. (iii) the recovery of salary of such employees was recorded by holding company in their books which was actual amount of salary paid and the same was credited in the books of ASE Ltd. who is being taxed at maximum marginal rate and there is thus no tax evasion. (iv) Similar reimbursement of deputed employees was being made in the earlier years and was allowed by the Assessing Officer. 3. Having regard to the facts and circumstances of the assessee's case the learned CIT(A) ought to have deleted such disallowance. 4. The respondent craves leave to add, alter, amend and/or withdraw any ground or grounds of cross objection either before or during the course of hearing of the same." 4. We shall first take up the Department is Grounds of appeal. Brief history of the present appeals 5. The brief facts of the case are that the original assessment order in this case was passed on 31.3.1997 u/s 143(3) determining total income at Rs. 1,29,02,948, as against the returned income of Rs. Nil. In....
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....lding company. The assessing officer disallowed the claim on the ground that the details of services rendered were not provided and therefore the aforesaid expenses were not allowed to the assessee. In the first round of appeal, Ld. CIT(Appeals) allowed the appeal of the assessee on the ground that this issue was covered in favour of the assessee for earlier assessment years, more particularly assessment years 1980-81 to 1990-91, 1992-93 and 1993-94. Relying on the orders of Ld. CIT(Appeals) for the aforesaid earlier years, Ld. CIT(Appeals) in the first round of appeal allowed the appeal of the assessee on this issue. In the Department appeal against the aforesaid issue, ITAT set aside the matter to the file of AO to examine the basis of expenses allowed in the earlier years and the basis for allowability in the present year. In the remand proceedings, AO again confirmed the original addition holding that the assessee has not furnished comparative position of these expenses for earlier years as directed by ITAT. In the second round of appeal, Ld. CIT(Appeals) allowed the appeal of the assessee with the following observations: I have examined the issue in great depth and pe....
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....every year and is based on the turnover ratio. As regards the other direction of the ITAT that the AO examine the comparative position, the assessee has stated that there are no records available as the matter is very old (about 20 years). The /op comparative position is nothing but examination of the basis of charge of earlier years vis-à-vis this year. On an examination of the evidence on record, I am of the view that the assessee has discharged his burden by providing details of AY 2003- 04, which even though is a later year, but the basis of allocation in that year being the same as in the present AY, surely is persuasive in nature. On a thoughtful consideration, I am of the view that the conditions laid down by the ITAT in its directions to the AO while setting aside the matter, have been fulfilled by the assessee and therefore the deduction needs to be allowed. Based on the discussion above, the disallowance of Rs. 33,65,154/- is deleted and ground No. 1 is allowed. 8. The Department is in appeal before us against the aforesaid relief provided by Ld. CIT(Appeals). The primary contention of the DR is that no new material has been furnished by the assessee in the seco....
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....espect to direction of the ITAT to give a comparison, the assessee has duly furnished the comparison with assessment year 2003-04, wherein similar payments as for the impugned assessment year were made and therefore, in our considered view Ld. CIT(Appeals) has correctly observed that the directions of ITAT have been met and lastly, it is also fact that this matter is very old pertaining to assessment year 1994-95 and owing to floods at that time, it was not possible for the assessee to produce the complete factual records. Accordingly, looking into the facts of the instant case, we find no infirmity in the observations made by Ld. CIT(Appeals) while giving relief to the assessee on this issue. 11. In the result, ground number 1 of the Department's appeal is dismissed. Ground number 2: Ld. CIT(Appeals) erred in deleting addition of Rs. 1,00,00, 000/- being the amount of service charges paid toSarabhai Common Services, a division of the company, which was disallowed by the AO under section 40A(2)(b) of the Act 12. The brief facts in relation to this ground of appeal are that the AO observed that the assessee had debited service charges of Rs. 8,12,33,688/- paid to Sarabhai C....
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....eal before Ld. CIT(Appeals), he allowed the appeal of the assessee with the following observations: The assessee has filed comprehensive details in pages 274 to 276, 292-293 and 489-492 of the paper book on this issue. Pages 274-276 show the basis of rates charged by SCS to the assessee and another group company Sarabhai M Chemicals, for the months of Oct, Dec 93 and Mar 94. It is seen that the same rate is charged to both companies for Steam, Electricity, Water & Effluent treatment. The assessee has also produced the debit notes as well as the register maintained by it for allocation of expenses between various group companies. Pages 292 & 293 pertain to the allocation of expenses on the above heads between several group companies. It is seen from the reply of the assessee as well as the details produced before me, that SCS is merely recovering the cost incurred without any mark up. Further, the cost per unit of steam, water etc is charged to each group company multiplied by the units actually consumed by them. Meaning to say, the charges are incurred by each group company based on actual consumption. To my mind, the assessee has been able to explain the basis of charge t....
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....ee has given a comparative basis for similar services charged by SCS to another group company and the said services were charged on the same rate to the assessee as well. Further, there is no basis for the assessing officer to make an ad hoc disallowance of Rs. 1 crore and the same was made on a purely ad hoc basis. Further, in our view, CIT has also taken into consideration the fact that the assessee has been able to demonstrate that the services were charged by SCS to the assessee only by way of reimbursement of costs and no excessive sum was charged to the assessee for the aforesaid services. The assessing officer has not been able to bring anything conclusive to controvert the aforesaid findings made by Ld. CIT(Appeals) in the first round of appeal as well. In the case of Enviro Control Associated (P.) Ltd.43 taxmann.com 291 (Gujarat), the Gujarat High Court held that where there was no material before Assessing Officer such as comparable rates etc. to come to conclusion that excessive payment was made to sister concern which warranted disallowance/ad hoc disallowance; deduction was to be allowed. In the recent case of Technip Energies Italy S.P.A.150 taxmann.com 525 (Delhi - T....
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....d in the notes to in Sch. K of the Balance Sheet. The assessee also submitted that the AO has picked up the quantitative details from the same Sch K, without giving credit to the quantity consumed for captive consumption and therefore he has wrongly presumed that the difference in quantity represents unaccounted sales. The assessee also submitted before the CIT(A) that as per Enclosure 3 of the Tax Audit Report, in quantitative details, captive consumption was clearly shown and in respect of Streptomycin captive consumption was shown 15,834 Kgs. and for Tetracycline 11,380 Kgs. Based on the above reconciliation, the CIT(A) held that there was no difference as presumed by the AO and the addition of Rs 4,56,56, 380 was deleted. In the Departmental appeal before the ITAT, the Hon'ble ITAT set aside the matter back to the AO, holding as under: "30. We have considered the rival submissions, perused the records and gone through the order of the authorities below. We find that clear finding was given by the AO in the assessment order than when the assessee was asked to explain this discrepancy, no explanation has been submitted by the assessee. The explanation in the form of ....
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...., has through a speaking order reconciled the discrepancy. The ITAT granted an opportunity to the AO to examine this issue once again with a specific direction to examine the captive consumption. The AO seems to have ignored this direction of the ITAT and instead held that Encl 3 is not found on file. However, the fact remains that the same was filed before both the CIT(A) as well as the ITAT, meaning thereby that Encl 3 to Sch K of the TAR was always available to the AO in the set aside proceedings. However, instead of examining the matter on merits, the AO rejected the claim as he could ostensibly not find the details in his assessment record. While doing so, the AO has overlooked the specific directions of the ITAT reproduced above, wherein it has been specifically directed that the contention of captive consumption is to be examined and if found correct, then no addition is called for. It is evident on facts that the assessee has been able to explain the discrepancy in quantities as they have been captively consumed. These facts were before the CIT(A) as well as ITAT in the 1St round of appeal, which the AO has overlooked in the set aside assessment. To reiterate, the sole remi....
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....iation of quantities of 2 products was as per Encl 3 to Sch K of the TAR, which was filed along with original return Accordingly, in the instant facts, in our considered view Ld. CIT(Appeals) has not erred in facts and in law in allowing the appeal of the assessee on this issue. 22. In the result, ground number 3 of the Department's appeal is dismissed. Now we shall take up the assessee's cross objection 23. The CO of the assessee is against the disallowance of Rs. 19,47,252/- being salaries of employees deputed to the assessee by its holding company Ambalal Sarabhai Enterprises Ltd. In the original assessment order, the AO has made this disallowance on the ground that the appellant had not submitted evidence in support of the claim that the amount was representing reimbursement of salary of the staff of the holding company deputed to the assessee company whose services are used for the business of the appellant. In the 1st round of appeal, the CIT(A) deleted this addition of Rs. 26,47,252, holding there are no new employees seconded during the year and they are the same who were seconded since many years. Nowhere in the past nor in the subsequent assessment years, the dep....
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....sine-qua-non for claim of deduction. As the assessee is not able to prove the very fact of deputation, there is no question of proceeding further to examine whether any services have been rendered. The argument of the assessee that he had filed debit notes of these expenses and this should be considered sufficient proof of the fact of deputation as well as that services have been rendered cannot be accepted in light of the specific directions of the ITAT. Both the AO as well as I am bound by those directions. Both the fact of deputation as well as rendering of services have to be proved for the assessee to be allowed this claim. As discussed above, the assessee has been able to prove the fact of deputation for only 11 of 25 employees and the AO has fairly allowed him the claim in respect of these 11 employees in the set aside assessment. In absence of deputation letters pertaining to the balance 14 employees, the assessee cannot prove that these persons were indeed deputed to him. I therefore uphold the disallowance of Rs 19,47,252 and dismiss ground 2. 26. The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(Appeals) confirming the disallowance of R....