TaxTMI 
TaxTMI 
2023 (11) TMI 1258
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....s appeals and the cross objection pertaining to AY 2009-10. The revenue carried out survey operation u/s 133A of the Act on 03-02-2009. Consequent thereto, the assessment was completed by the AO u/s 143(3) of the Act by making various additions. The Ld CIT(A) allowed the appeal in part and hence both the parties are in appeal before us challenging the decision rendered on the issues decided against each of them. 4. In the cross objection, the assessee has raised certain legal contentions. (I) ASSESSMENT YEAR 2009-10 - ASSESSEE'S APPEAL:- 5. We shall first take up the appeal filed by the assessee for AY 2009-10, wherein following issues are contested:- (a) Addition made u/s 40A(3) of the Act (b) Addition made u/s 14A of the Act. 5. The first issue relates to the addition made u/s 40A(3) of the Act. The revenue has also challenged the decision rendered by Ld CIT(A) on this issue. Since the Ld CIT(A) granted partial relief on this issue, both the parties are in appeal. 5.1 The facts relating to this issue are that during the course of assessment proceedings, the AO noticed that the assessee has made major purchases from a person named Shri Krishna Kuma....
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....ve been made to the supplier by way of cash. When the assessee is making part of purchase consideration by way of cash (as freight payments made on behalf of suppliers), then the provisions of sec. 40A(3) would get attracted. 5.5 We notice that the Ld CIT(A) has held that the provisions of sec. 40A(3) would be attracted only if the individual payment made by way of cash exceeds Rs. 20,000/-. In our view, the Ld CIT(A) is correct on this aspect. Accordingly, the provisions of sec. 40A(3) would get attracted only if the individual payments exceed the threshold limit of Rs. 20,000/-. We notice that the details of payments exceeding payment of Rs. 20,000/- have been tabulated by Ld CIT(A) in pages 86 - 87 of the paper book. The aggregate amount of such kinds of payments works out to Rs. 12,06,600/-. These payments have been debited to the account of suppliers and the same would mean that the part of purchase consideration of jute products has been paid by way of cash. Before Ld CIT(A), the assessee has contended that the individual payments made to each of the lorry owners on a particular day may not exceed Rs. 20,000/-. However, we notice that the assessee has not substantiated the....
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....A is not called for when there is no exempt income. It is also well settled proposition that the disallowance out of interest expenditure is not called for, when the own funds available with the assessee exceeds the value of investments, because the presumption in that case is that the investments have been made out of own funds only. Accordingly, on both the counts discussed above, the disallowance made by the AO u/s 14A is not called for and accordingly, the same is liable to be deleted. 6.4 Accordingly, we modify the order passed by Ld CIT(A) on this issue and direct the AO to delete the disallowance made u/s 14A of the Act. (II) ASSESSMENT YEAR 2009-10 - REVENUE'S APPEAL:- 7. We shall now take up the appeal filed by the revenue for AY 2009-10. Following issues are contested in this appeal by the revenue:- (a) Addition u/s 68 of the Act - Rs. 92,72,104/- (b) Disallowance of Repairs & Maintenance expenses - Rs. 26,92,287/- (c) Addition of unexplained investment in factory building - Rs. 12,92,000/- (d) Disallowance of loss from Syntax Division (e) Addition made u/s 40A(3) of the Act. 8. The first issue contested by the reve....
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....efore the AO, who examined them. However, the AO found fault with them, i.e., those persons did not prove their land holdings; that there was slight change in the name of farmer etc. Accordingly, the AO took the view that the assessee has failed to prove cash credits in terms of sec. 68 of the Act. Accordingly, he assessed the above said sum of Rs. 92,72,104/- as unexplained income of the assessee u/s 68 of the Act. The Ld CIT(A) deleted the same and hence the revenue is contesting the decision of Ld CIT(A). 8.3 We heard the parties and perused the record. From the nature of transactions explained above, we notice that, for every credit of the amount against a farmer's name, there is corresponding debit for purchase of raw material. This shows that the amount credited in the name of farmer is a trade credit towards purchase of raw materials. We notice that the AO has presumed that the assessee has introduced funds in the name of farmers ranging from Rs. 10,000/- to Rs. 19,000/-, whenever there is requirement of funds. It appears that the AO has misdirected himself in presuming so, because he has failed to disprove the claim of assessee that the credit available in the name of th....
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....he sense that some monies have been received by the assessee, but the credit represents a mere liability payable by the assessee in future. Under accounting principles, a liability can only be brought into account by making a credit entry in the books of account in favour of the person to whom the money is payable. Thus, there is marked difference between a credit representing a liability payable by the assessee and a credit representing monies received from another person. It is because of this distinction, a liability for purchase which has been credited in the account of the supplier cannot be added under section 68 of the Act, more so when the purchase has been accepted as genuine and a deduction there for has been allowed. In all other cases including the case of a credit representing the sale proceeds of an asset, the provisions of section 68 are applicable and it is for the assessee to prove satisfactorily the nature and source of the monies....... " 8.6 Similar view has been expressed by Hon'ble Delhi High Court in the case of CIT vs. Ritu Anurag Agarwal reported in 2009 (7) TMI 1247 as under:- "This finding of AO remained undisturbed before the CIT(A) as well a....
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....) took the view that, if the expenditure does not result in creation of new asset, then the same cannot be considered as capital in nature. In this regard, he placed reliance on the decision rendered by Mumbai ITAT in the case of Gujrat Reclaim and Rubber Products Ltd vs. Addl CIT (60 SOT 22). Accordingly, he deleted the disallowance made by the AO. The revenue is aggrieved. 9.4 We heard the parties and perused the record. Since the assessee had incurred expenditure on purchase of iron rods, the AO has taken the view that the same constitutes Capital expenditure. However, the Ld CIT(A) has observed that "the litmus test for saying any expenditure is Capital or Revenue is that some new asset should come into existence. In this case, no finding of fact is given by the AO that any new asset has come into existence. The AO has treated the expenditure as capital in nature, since the expenditure consisted of purchase of materials like iron rod etc. The submission of the assessee is that they have been used to strengthen the existing structures only and this submission has not been proved to be false. Under these set of facts, we are of the view that the AO has not shown that the impug....
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....ition is liable to be deleted. Further, it is noticed that the addition has been made on the basis of estimate given by DVO. The Ld A.R submitted that the said report of DVO was not confronted with the assessee by the AO. It was also submitted that the deficiencies in the valuation report given by the Registered valuer, which was submitted by the assessee, were not also brought on record. It is well settled proposition of law that the AO cannot place reliance on the documents, which were not confronted with the assessee. Hence the AO could not have relied upon the report of DVO for making impugned addition. Accordingly, we are of the view that the Ld CIT(A) was justified in deleting this addition and accordingly uphold the same. 11. The next issue urged by the revenue relates to the disallowance of loss of Rs. 61,84,000/- arising in Syntax division. 11.1 The AO noticed that the assessee had declared total income of Rs. 243.64 lakhs for the year relevant to AY 2008-09, while it has declared total income of Rs. 38.19 lakhs only in the current year. The assessee explained that the main reason for the reduction in income is due to loss suffered in its Syntax Division to the tune ....
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....interest expenditure and increase in depreciation claim. We notice that the AO did not find the said explanations to be incorrect. In our view, the AO could not have rejected the reasons given by the assessee without finding fault therein, i.e., if the AO could not find fault, the reasons given by the assessee should have been accepted. We also notice that the assessee is a limited company and its accounts are audited both under the Companies Act and Income tax Act. There is no allegation that the auditors have not accepted the accounts of the assessee, which would mean that the expenses and revenue booked by the assessee have been audited and accepted by the auditors. As pointed out by Ld CIT(A), the AO has also accepted the purchases and sales figures reported by the assessee. Even though the AO has reported in the remand report that he has rejected the books of accounts on account of deficiencies, yet, on a perusal of the assessment order, we do not find any such observation made by the AO. Accordingly, we do not find any merit in the action of the AO in disallowing the loss declared in the Syntax division. Accordingly, we are of the view that the Ld CIT(A) was justified in dire....
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.... the assessee submitted that no individual payment has exceeded the threshold limit of Rs. 20,000/-, yet the assessee did not furnish supporting vouchers/bills for verification before the AO. Hence, the AO disallowed above said amount u/s 40A(3) of the Act. 16.1 Before Ld CIT(A), the assessee submitted that the various payments noted down by the assessing officer is aggregate amount paid to several persons, i.e., individual payment made to each of the persons did not exceed the threshold limit of Rs. 20,000/-. It was submitted that the assessee had produced original vouchers before the AO, which is evidenced by the Paragraphs 12 and 13 of the written submissions dated 23.11.2016 furnished before the AO. The said paragraphs read as under:- "12. Books of accounts as mentioned under Form 3CD of the tax audit report are produced herewith for your verification. 13. No payment in cash in excess of Rs. 20,000/- or more has been made. Vouchers in original are produced herewith for your verification." The assessee also furnished the explanation with regard to each of the payments made under various heads in order to substantiate that the payments made to any individu....
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....e payments mentioned by the AO are the aggregate amounts and they have been paid to several persons, meaning thereby, the individual payments did not exceed Rs. 20,000/-. In view of the clear finding given by Ld CIT(A), we are of the view that the decision rendered by Ld CIT(A) on this issue does not call for any interference. Accordingly, we uphold the same. 17. The next issue contested by the revenue relates to the addition relating to unverified consignment sales expenses. 17.1 The AO noticed that the assessee has claimed expenses relating to consignment sales to the tune of Rs. 72,08,335/-. Since the assessee did not furnish bills/vouchers and also the details of TDS deducted, the AO disallowed 10% of expenses, i.e., Rs. 7,20,834/- on adhoc basis. However, we notice that the AO did not add the above said disallowance while computing total income. 17.2 The Ld CIT(A) agreed with the submissions of the assessee that adhoc disallowance was not permitted under law. He also expressed the view that the failure to deduct TDS should have been pointed out by the AO. 17.3 We heard the parties on this issue and perused the record. We have noticed earlier that the AO did not add....
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....he extra profit addition of Rs. 3,64,60,658/-. The appellant is a public limited company which had maintained books of account as per the provisions contained in section 129 of the Companies Act 2014 (corresponding to section 209 of the Companies Act 1956). The accounts so maintained by the company were subjected to twin audits one statutory audit under the Companies Act and another tax audit under the Income Tax Act. Both the audit reports are on record and there is no qualification raised in any of audit reports. Section 145 provides for rejection of accounts only where accounting standard to be followed by any class of assessee have not been followed and/or the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee. So far as first condition is concerned, there is no violation, atleast nothing has been specified either in the twin audit reports or even by the Assessing Officer. Thus, the issue is confined to correctness and completeness of the books. 42. In his order, the Assessing Officer has pointed out two factors which, according to him are the short comings, affecting the correctness of the books. This issue has bee....
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....,58,029) (1,22,98,980) (2,03,57,009) Raw Materials Consumed 75,79,70,972 45. Moreover, it was a case of scrutiny assessment and the assessment had been made after examination of books of account. During the course of assessment proceedings copy of jute purchase account and raw material purchase account (pertaining to syntax division) had been placed before the Assessing Officer, for which there was a requisition. List of sundry creditors alongwith their address, PAN etc. as required by the Assessing Officer had also been placed. So much so in the case of syntax division, copies of accounts of the appellant in the books of suppliers had also been filed and placed on record. The transactions in said bank accounts were verified from the bank statements, as payments had been made through banking channel. Copies of all the bank accounts maintained by the appellant had duly been placed before the Assessing Officer but no defect or discrepancy was found. On these set of circumstances, the ground of alleged unverifiability of purchase of raw material also fails. 46. In due discharge of my appellate function I myself and called for analysis ....
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.... accounts. The Ld CIT(A) has also pointed out fallacy on the part of AO in adopting the correct purchase value. The Ld CIT(A) has also observed that the assessee has placed accounts relating to jute purchase and raw material purchase. It has also furnished copies of bank accounts, sundry creditors accounts. He has also noticed that there is increase in raw material cost as claimed by the assessee. He has also given categorical finding that the AO did not point of any defect or discrepancy in the books of accounts maintained by the assessee. Accordingly, the Ld CIT(A) has held that the rejection of book results and consequent estimation of profit is not called for. Accordingly, the Ld CIT(A) has deleted the addition of Rs. 3,64,60,658/- made by the AO towards extra profit. 18.4 On a perusal of the order so passed by Ld CIT(A), we are of the view that the first appellate authority has passed a reasoned order dealing with the points raised by the AO. Further, the Ld CIT(A) has also demonstrated that the rejection of book results is not called for in the facts and circumstances of the case. Before us, the revenue could not contradict various findings given by Ld CIT(A). Accordingly,....