TaxTMI 
TaxTMI 
2025 (7) TMI 1993
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....sessment Year 2011- 12 in ITA No. 954/Ahd/2016 2. The assessee has raised the following grounds of appeal: "1. Disallowance of other expenses of Rs. 1,46,692/- being 10% of total other expenses of Rs. 14,66,923/-. 2. Book profit u/s. 115JB - Addition to Book profit in respect of disallowance u/s. 14A. 3. Salaries and wages of packart press division- Rs. 28,79,209/-. 4. Set off of unabsorbed brought forward business loss of earlier years against income from short term capital gains on depreciable assets computed u/s. 50 of the IT Act. 5. Debit balances written off of Rs. 21,90,554/-. 6. Adjustments for past provisions representing booking of expenditure of Rs. 36,39,473/-. 7. DPCO Liability of Rs. 5,24,57,203/-." Ground Number 1: CIT(Appeals) erred in confirming the disallowance of 10% of "other expenses" of Rs. 1, 46, 692/- 3. The brief facts of the case are that during assessment proceedings Assessing Officer's made ad hoc disallowance amounting to Rs. 6,64,656/-, which comprised Rs. 1,46,692/- being 10% of the total "other expenses" of Rs. 14,66,923/-, and the entire amount of telephone and vehicle expens....
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....079 5,09,192 Assessee 1783/Ahd/2016 2007-08 Other Expenses (5% adhoc) 757187 1,31,538 Assessee 1,31,538 Assessee 2067/Ahd/2016 2007-08 Miscellaneous Expenses (5% adhoc) 757187 6,25,649 Revenue 27. The AO disallowed a portion of the expenses claimed under the Profit and Loss account on the grounds that they were either non-business in nature or lacked sufficient evidence to establish that they were incurred wholly and exclusively for business purposes. The assessee claimed certain expenses under the head "Miscellaneous Expenses," but could not provide detailed break-up or evidence to substantiate that these expenses were wholly and exclusively for business purposes. The AO specifically highlighted that some expenses, such as Diwali expenses, distribution of sweets, and boni, were of a personal or non-business nature. The AO determined that 5% of the miscellaneous expenses, amounting to Rs. 1,31,538, were not verifiable or relatable to business purposes. The AO also identified some expenses on telephones and on vehicle running and maintenance expenses. While the assessee provided a broad break-up of these expenses, detailed record....
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...., relying on the appellate order for A.Y. 1998-99, where a similar disallowance was sustained. 32. We note that the issue of disallowance of telephone and vehicle expenses, as well as miscellaneous expenses, has been adjudicated in the assessee's favour by the Co-ordinate Bench in the ITA No. 1461/Ahd/2001 (A.Y. 1996-97), ITA No. 1597/Ahd/2001 (A.Y. 1998-99), ITA No. 933/Ahd/2016 (A.Y. 1999-2000). 32.1. We reproduce the relevant paras of the order of the Co-ordinate Bench in case of ITA No. 1461/Ahd/2001 for the A.Y. 1996-97 - "41. The Revenue's eleventh ground of appeal relates to disallowance effected @ 5% out of the assessee's. claim of expenditure on account of tapes and floppies (Rs. 1.10 lacs), miscellaneous expenses (Rs. 27.45 lacs), telephone expenses (Rs. 70.88 lacs) and vehicle expenses (Rs.52.88 lacs), i.e.. at an aggregate of Rs. 152.31 lacs. The expenditure stands disallowed on account of its un-verifiably. so that a pan thereof is inferred by the A.O as being not laid out for business purposes, estimating the non-business user at five per cent. In appeal, the same stood allowed by the Ld. CIT(A) on the basis of the assessee havin....
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....has challenged the disallowance of salary and wages paid to employees of the Packart Press Unit, which the AO and the CIT(A) disallowed on the grounds that the unit was closed and not operational. The disallowance of salary and wages for the Packart Press Unit has been raised across multiple appeals, as summarized below: ITA No. Assessment Years (A.Ys.) Salary and Wages Disallowed (Rs.) 1772/Ahd/2015 2002-03 41,92,427 1773/Ahd/2015 2003-04 39,47,285 1290/Ahd/2016 2004-05 33,86,757 1782/Ahd/2016 2005-06 32,79,890 1783/Ahd/2016 2007-08 30,71,067 1291/Ahd/2016 2006-07 32,99,000 (Rs. 7,65,865/- claimed as other expenses relating to the said units is also part of the ground) 17.1. The AO noted that the Packart Press Unit had been closed as per the order of the Specified Authority (Labour Commissioner). The statutory audit report indicated that no provision for salary, wages, or other expenses was made in the books of account since the unit was closed. The AO observed that the closure of the unit had been challenged by the employees' union before the Industrial Tribunal and while the Labour Commissioner's order appro....
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...., wherein similar issues were remanded to the AO for verification of facts and proper adjudication. 20. The DR relied on the orders of the AO and CIT(A), contending that there was no evidence to substantiate the claim that salaries and wages were paid or that liability for these expenses had crystallized during the relevant year. 21. We noted the Co-ordinate Bench's decision in earlier years which did not conclusively establish the allowability of the expenses but only remanded the matter for further verification. However, it was observed by the coordinate bench that the Packart Press Unit was not a distinct line of business but functioned as part of the assessee's overall operations, supporting other units. It was also observed that the allowability of salary and wage expenses depended on whether the liability had accrued during the relevant year based on contractual obligations and whether it was substantiated by evidence. The Co-ordinate Bench also concluded that assessee has not conclusively demonstrated that the liability for salaries and wages was accrued or crystallized during the relevant year and the assessee has not furnished sufficient evidence, such as....
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.... as a business loss under Section 28 of the Act. The amounts written off pertains to outstanding on account of sales of goods, deposits, and other transactions undertaken by the assessee in the course of business. The claim was disallowed by the AO and upheld by the CIT(A) on the grounds of insufficient evidence and non-fulfilment of conditions under Section 36(1)(vii) for bad debt deduction. 56. During the course of hearing before us the AR stated that it is absolutely wrong on part of CIT(A) to hold that the assessee did not provide the details to show that these amounts were offered to tax in earlier years. The AR pointed out from the paper book that the details were submitted to both AO and CIT(A) which include list of amounts written off supported by ledger accounts in which narration clearly indicate invoice numbers, list of depot-wise details of amounts. The AR alternatively claimed the deduction as a business loss under Section 28, arguing that the outstanding balances arose from regular business transactions. The AR Placed reliance on following judicial precedents for the alternate claim: - Jackie Shroff Vs. ACIT, Range 16(1) - [2019] 101 taxmann.com 455 ....
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.... (supra) that Irrecoverable advances, if made for business expediency, may be allowed as business loss under Section 28 or Section 37(1) of the Act. 60. Considering the facts and circumstances, judicial precedents relied on, we conclude that the assessee has provided sufficient evidence to establish that the amount of Rs.1,48,66,928 was written off as irrecoverable in the books of accounts. The details submitted, including ledger accounts and depot-wise narrations, clearly indicate the amounts related to business transactions and were part of the income offered to tax in earlier years. Post-amendment (w.e.f. 1.4.1989), the act of writing off debts in the books is sufficient to claim deduction under Section 36(1)(vii) of the Act. The necessity to prove that the debts became bad is no longer applicable. The year of write-off determines the allowability of the deduction, irrespective of when the debt became bad. Wherever the amounts were not relating to income of earlier years and written off it is evident that the write-off pertains to outstandings arising out of regular business transactions, including sales of goods and deposits, which are incidental to the business. Hon'b....
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....the file of CIT(Appeals) for de novo consideration, in light of any evidence/material which the assessee would like to place on record. 19. In the result, Ground No. 6 of the assessee's appeal is allowed for statistical purposes. Ground Number 7: CIT(Appeals) erred in not allowing DPCO liability of Rs. 5,24,57,203/- 20. The brief facts of in relation to this ground of appeal are that the assessee, a company in which the public is substantially interested and engaged in the manufacture and marketing of bulk drugs and formulations, filed its return of income for the relevant assessment year declaring a loss under the normal provisions and a positive income under section 115JB of the Act. Along with the return, the assessee submitted documentation alongwith a note claiming a liability of Rs. 5,24,57,203/- under the Drugs (Prices Control) Order, 1995 (DPCO), arising from Government demand notices. The AO however omitted to deal with the DPCO liability claim in the assessment order. In appeal before CIT(Appeals), the assessee submitted that the DPCO liability related to alleged excess realization over ceiling prices fixed by the Government on scheduled drugs, specifically Oxyph....
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....cial years 1998-99 and 2005-06, amounting to Rs. 84.13 lakh and Rs. 6.76 crore, respectively. During financial year 2008-09, the assessee made part payments towards these demands as directed by the Hon'ble Gujarat High Court. Following these payments, an outstanding balance of Rs. 5.24 crore remained. In December 2011, the High Court ordered the assessee to pay 50% of this outstanding balance and furnish a bank guarantee for the remaining 50%. While the assessee claimed deduction of the entire outstanding amount in the computation of income for the current assessment year, it failed to specify when the balance payment was actually made. The Commissioner observed that the assessee's position rested on the argument that since the DPCO demands had not been quashed by any Court and were thus enforceable, the liability had accrued and should be allowable under the mercantile system of accounting. The assessee relied on the Gujarat High Court's decision in the case of I.G. Gandhi Silk Mills Ltd. to support this claim. However, the Commissioner rejected this contention, holding that if the liability under DPCO were to be treated as a Statutory liability, then as per the judgments of the S....
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....t of Chemicals and Petrochemicals: one dated 25.02.1999 for Rs. 84.13 lakh and another dated 27.01.2006 for Rs. 6.76 crore. These demands were challenged by the assessee before the Hon'ble Gujarat High Court through Special Civil Applications (SCA No. 9066/2008 and SCA No. 9067/2008), and recovery was stayed by interim orders dated 24.07.2008 and 31.12.2011, subject to partial payments and furnishing of bank guarantees. The assessee paid Rs. 2.05 crore and Rs.30.30 lakh against the demands in 2008, and later a sum of Rs. 2.62 crore in 2011, along with a bank guarantee for the remaining amount. These transactions were duly accounted for in the books and reflected in the audited financial statements. The Assessing Officer, however, did not discuss this claim at all in the assessment order despite the assessee having placed on record relevant details. In the appellate proceedings before us CIT(Appeals), the assessee submitted that under the mercantile system of accounting, once a liability is determinable and enforceable, it accrues irrespective of whether it is disputed or finally adjudicated. The assessee relied on several judicial precedents including IG Gandhi Silk Mills Ltd., Nat....
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....ollowing the mercantile system of accounting, under which liabilities are recognized when they accrue, not when they are paid. The timing of payments or final judicial resolution does not affect the accrual of the liability when it is otherwise enforceable. The Department has not brought on record any evidence to suggest that the liability is bogus, contingent, or not incurred wholly and exclusively for business. Lastly, we find merit in the assessee's submission that the Revenue cannot on the one hand tax the gross sales including the overcharged price and on the other disallow the consequential liability imposed by the same statute (DPCO) governing such pricing. The doctrine of real income and principles of matching expenditure with income must be applied in a rational and fair manner. In view of the above discussion and considering the facts, documents, judicial precedents, and Statutory accounting principles, we hold that the liability of Rs. 5,24,57,203/- claimed by the assessee under DPCO has validly accrued during the relevant assessment year and is allowable as a deduction under section 37(1) of the Act. 23. In the result, Ground No. 7 of the assessee's appeal is all....
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..../2016 2005-06 Other Expenses (5% adhoc) 521826 1,73,973 Assessee 2066/Ahd/2016 2005-06 Miscellaneous Expenses (5% adhoc) 521826 3,47,853 Revenue 1291/Ahd/2016 2006-07 Other Expenses (5% adhoc) 1010079 5,09,192 Assessee 1783/Ahd/2016 2007-08 Other Expenses (5% adhoc) 757187 1,31,538 Assessee 1,31,538 Assessee 2067/Ahd/2016 2007-08 Miscellaneous Expenses (5% adhoc) 757187 6,25,649 Revenue 27. The AO disallowed a portion of the expenses claimed under the Profit and Loss account on the grounds that they were either non-business in nature or lacked sufficient evidence to establish that they were incurred wholly and exclusively for business purposes. The assessee claimed certain expenses under the head "Miscellaneous Expenses," but could not provide detailed break-up or evidence to substantiate that these expenses were wholly and exclusively for business purposes. The AO specifically highlighted that some expenses, such as Diwali expenses, distribution of sweets, and boni, were of a personal or non-business nature. The AO determined that 5% of the miscellaneous expenses, amounting to Rs. 1,....
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....d hoc basis, citing unverifiability of some components such as Diwali expenses, distribution of sweets, and bonuses. The AO concluded that these expenses were not wholly and exclusively for business purposes. The CIT(A) upheld the disallowance, relying on the appellate order for A.Y. 1998-99, where a similar disallowance was sustained. 32. We note that the issue of disallowance of telephone and vehicle expenses, as well as miscellaneous expenses, has been adjudicated in the assessee's favour by the Co-ordinate Bench in the ITA No. 1461/Ahd/2001 (A.Y. 1996-97), ITA No. 1597/Ahd/2001 (A.Y. 1998-99), ITA No. 933/Ahd/2016 (A.Y. 1999-2000). 32.1. We reproduce the relevant paras of the order of the Co-ordinate Bench in case of ITA No. 1461/Ahd/2001 for the A.Y. 1996-97 - "41. The Revenue's eleventh ground of appeal relates to disallowance effected @ 5% out of the assessee's. claim of expenditure on account of tapes and floppies (Rs. 1.10 lacs), miscellaneous expenses (Rs. 27.45 lacs), telephone expenses (Rs.70.88 lacs) and vehicle expenses (Rs. 52.88 lacs), i.e.. at an aggregate of Rs.152.31 lacs. The expenditure stands disallowed on account of its ....
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....ot dispute that in the instant case no exempt income had been earned by the assessee. 30. It is a well-settled law on the subject that no disallowance can be made under section 14A in case the assessee has not earned any exempt income. The Hon'ble Supreme Court in the case of State Bank of Patiala [2018] 99 taxmann.com 286 (SC) held that where High Court took a view that amount of disallowance under section 14A could be restricted to amount of exempt income only, SLP filed against said order was to be dismissed. The Hon'ble Supreme Court in the case of Chettinad Logistics (P.) Ltd. [2018] 95 taxmann.com 250 (SC)dismissed SLP against High Court ruling that section 14A cannot be invoked where no exempt income was earned by assessee in relevant assessment year. The Gujarat High Court in the case of Dipesh Lalchand Shah [2022] 143 taxmann.com 419 (Gujarat) held that where in relevant assessment year, assessee-individual earned profits from partnership firm and made investments in shares of a company, since its income from partnership was negative and no exempt income was earned, in such case disallowance under section 14A could not be made. In the case of Corrtech Energy (P.....
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....unting to Rs. 96,92,860/- during the relevant assessment year. This amount was duly accounted for in the books, with brokerage payments made via account payee cheques, tax deducted at source, and supported by debit notes, ledgers, agreements, and confirmations filed before the Assessing Officer. The AO, however, disallowed the brokerage expenditure, primarily on the grounds that such expenses had not been claimed in the preceding assessment year, that the assessee failed to establish the specific nature of financial assistance arranged, and that brokerage payments appeared to be ongoing monthly commissions rather than one-time charges. The AO also questioned the business expediency of these payments, noting that some of the brokers, including M/s. PP Estate Pvt. Ltd., had both arranged loans and directly lent funds to the assessee. The AO further contended that brokerage was paid despite the assessee having made investments in shares of group companies during the year, which in the AO's view contradicted the claim that funds were raised for business exigencies. In proceedings before CIT(Appeals), the assessee submitted that brokerage was paid solely for loans arranged by brokers an....
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....he Department is in appeal before us against the aforesaid order passed by Ld. CIT(A). Before us, the Ld. DR placed reliance on the observations made by the Assessing Officer in the assessment order. The Ld. DR submitted that the said loans for which the brokerage was paid was not used by the assessee for it's own business, but was utilized by the assessee to make investment in shares of group companies. Accordingly, in light of these facts, the Assessing Officer has correctly held that these loans were not utilized for the purpose of expanding the business of the assessee company. 36. In response, the Counsel for the assessee reiterated the submissions made before Ld. CIT(A). The Counsel for the assessee submitted that the aforesaid brokerage was not paid to the said parties for acting as a guarantor but it was for services provided by these parties for arranging loans to meet the working capital requirement of the assessee. 37. We have heard the rival contention and perused the material on record. 38. On going through the facts of the instant case, we observe that the fact that the said loans were not utilized by the assessee in it's own business, but were used by the as....
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....of Revenue's appeal relating to festival allowance, Misc. expenses, Telephone expenses, Vehicle expenses, the Ld. DR submitted that the CIT(A) erred in allowing these expenses. 31. The Ld. AR submitted that this issue is covered in favour of the Assessee for A.Y. 1998-99 being ITA No. 1956/Ahd/2001 order dated 29.08.2008 and A.Y. 1999- 2000 being ITA No. 933 & 1313/Ahd/2016 order dated 17.01.2019. 32. We have heard both the parties and perused all the relevant material available on record. The Tribunal in A.Y. 1998-99 held as under: "9. Ground No. 3:- So far as issue involved in ground No. 3 is concerned, the same has been decided by the CIT(appeals) as per his findings contained in paragraph No. 6.2. of the appellate order, which are in the following terms:- "6.2 After hearing the appellant's counsel and on verification it is found that the addition made on account of similar disallowance has been deleted by me in the appellant's own case for the assessment year 1996-97 in Appeal No. CAB/I-127/98-99 and, therefore, following the said order the addition of Rs. 5,56,982/- on account of disallowance of Festival Allowance is deleted and the appellan....
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...., Telephone expenses, Vehicle expenses, the Tribunal observed as under: "24. Ground No.8:- So far as issue involved in ground No. 8 is concerned, the same has been decided by the CIT(Appeals) as per his findings contained in paragraph No. 7.5 of the appellate order, which are in the following terms: "7.5 After hearing the learned counsel for thee appellant and after going through the material on record, I find considerable force in the appellant's arguments and after taking into consideration the Tribunal decisions relied upon by the appellant referred to above I restrict the disallowance to 5% of miscellaneous expenses of Rs. 45,38,660/- amounting to Rs. 2,26,933/- as done in earlier years and delete the disallowance of Rs. 2,81,435/- made on adhoc basis out of Rs. 5,08,368/-. Thus the appellant gets relief of Rs. 2,81,435/-. As regards the disallowance out of telephone and vehicle expense, the same are deleted relying on the above mentioned decisions of Hon'ble ITAT, Ahmedabad." 25. The ld. DR has supported the order of the Assessing Officer, whereas the ld. Counsel for the Assessee submitted that the issue raised in this ground of Revenue's appeal stan....
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.... made under Section 14A of the Act 45. Before us, at the outset, the Counsel for the assessee submitted that since during the impugned year under consideration, no exempt income was earned by the assessee, there is no question of making any disallowance under Section 14A of the Act. 46. In view of our observations made in the Department's appeal for A.Y. 2011-12, while dealing with the similar issue Ground No. 2 of the Department's appeal is dismissed. Ground No.3:- Ld. CIT(A) erred in disallowance of Rs. 1,26,61,635/- as brokerage expenses 47. We note that the facts in relation to this ground of appeal has been dealt with while dealing with Ground No.3 of the Department's appeal for A.Y. 2011-12. 48. In light of our observations made in the preceding part of our judgment, Ground No. 3 of the Department's appeal is allowed. Now we shall deal with assessee's appeal for A.Y. 2012-13 in ITA No. 1807/Adh/2017 49. The assessee has taken the following grounds of appeal: "1. Salaried and wages of packart press division - Rs. 28,78,876/- 2. Long Term Capital Gains - sale of factory land rejection of fair market value as at 1.4.1981 adopted as per valu....