TaxTMI 
TaxTMI 
2022 (5) TMI 1713
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.... 2. The ground No.1 raised by the assessee is challenging the confirmation of disallowance of rent paid to Coating Specialities (India) Ltd., of Rs. 23,15,000/- u/s. 40A(2)(a) of the Act. 2.1. We have heard rival submissions and perused the materials available on record. We find that assessee company is engaged in the business of manufacturing of plastic containers, bottles, caps, jars and cans for packaging needs. Majority of the customers of the assessee are in painting industry. The assessee paid rent of Rs.23,15,000/- to Coating Specialities (India) Ltd., The Id. AO observed that the said concern is a sister concern of the assessee and accordingly, the payment of rent made by the assessee was sought to be examined from the purview of Section 40A(2) of the Act. The ld. AO observed that assessee had paid rent for the first time during the year under consideration to Coating Specialities (India) Ltd., The copy of rent agreements were furnished by the assessee before the ld. AO which are enclosed in pages 2-16 of the paper book. The details of the same are as under :- Unit No. Area in Sq.Ft Rent per month Period for which rent is paid Rent Amount in AY 2010-11 ....
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.....ft per month is lesser than rent paid to an unrelated party i.e. Mrs.Vandana G. Pahilwani and Mr. Ghanshyam L. Pahilwani. On this count itself, the rent paid by the assessee cannot be treated as excessive to invoke the provisions of Section 40A(2) of the Act. As stated supra, in any case, the ld. AO had not brought any evidence on record by way of comparable instances of fair market value of rent to drive home the point that rent paid by the assessee is excessive or unreasonable. Hence, we have no hesitation in directing the ld. AO to delete the disallowance made u/s. 40A(2)(a) of the Act in the sum of Rs. 23,15,000/- towards rent. Accordingly, the ground No.1 raised by the assessee is allowed. 3. The ground No. 2 raised by the assessee is challenging the disallowance of management fees of Rs. 63,00,000/- u/s.40A(2)(a) of the Act. 3.1. We have heard rival submissions and perused the materials available on record. The assessee paid Rs. 93,00,000/- towards management fees to Coating Specialities (India) Ltd., The assessee placed on record the agreement entered for marketing consultancy with Coating Specialities (India) Ltd., wherein consideration was fixed to be payable by the....
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.... period 01/04/2009 to 31/03/2010. A Confirmation letter to this effect is enclosed in page 30 of the paper book. The assessee had even bothered to furnish the reconciliation statement of management fees as per TDS Certificate, books of accounts stating the month wise details thereon, which is enclosed in page 31 of the paper book. The aforesaid payment of management fees had been duly subjected to deduction of tax at source by the assessee. The ld. CIT(A) considering the fact that the sales to non- Asian Paints customers had increased only by 25%, held that the management fees also would be eligible for increase only to the extent of 25% and since Rs. 24,00,000/- was paid in earlier year, the payment of management fees during the year would be reasonable if the same is fixed at Rs. 30,00,000/- (Rs. 24,00,000 x 25% of Rs. 24,00,000). Against this finding of the ld. CIT(A), there is no appeal by the Revenue preferred before us and only assessee is in appeal for deletion of disallowance of remaining Rs.63,00,000/- (Rs.93,00,000/- - Rs.30,00,000/-). As stated earlier in ground No.1, even for this disallowance, the ld. AO had not brought any evidence on record any comparable instances t....
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....er, in ground No.2 hereinabove, even for this disallowance the ld. AO had not brought any evidence on record any comparable instance to drive home the point that the payment of commission made by the assessee to MIPAC Polymers Ltd., is excessive or unreasonable to invoke the provisions of Section 40A(2) of the Act. Hence, in our considered opinion, the provisions of Section 40A(2) of the Act could not be brought into operation at all in the instant case without bringing in any comparable instances on fair market value of commission payment. Hence, we have no hesitation in deleting the disallowance of commission payment of Rs.7,17,681/- made herein. Accordingly, the ground No.3 raised by the assessee is allowed. 5. The ground No.4 raised by the assessee is challenging the confirmation of addition made u/s. 68 of the Act in respect of loan received in the sum of Rs. 20,00,000/- and disallowance of interest paid on such loan amounting to Rs. 93,890/-. 5.1. We have heard rival submissions and perused the materials available on record. We find that assessee has raised unsecured loan of Rs.20,00,000/- from Rangudyan Insurance Broking Services Ltd., on 01/11/2009. The assessee had p....
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.... genuine, the interest on such loan also becomes an allowable business expenditure. Moreover, it is not the case of the revenue that the said loan was not used for the purpose of business by the assessee. Accordingly, we delete the addition of Rs. 20,00,000/- made u/s.68 of the Act and consequentially delete the disallowance with interest of Rs.93,890/- made by the ld. AO. Accordingly, the ground No.4 raised by the assessee is allowed. 6. The ground No.5 raised by the assessee is challenging the confirmation of addition made u/s. 68 of the Act in respect of public deposits received by the assessee in the sum of Rs.1,88,73,000/- and disallowance of interest paid of Rs. 15,00,000/- on an adhoc basis. 6.1. We have heard rival submissions and perused the materials available on record. We find that assessee received deposits from public during the year under consideration amounting to Rs.2,25,95,000/-. The ld. AO vide notice dated 20/03/2012 directed the assessee to file the list of depositors who had invested more than Rs 5 lakhs, confirmation from them, their address, PAN and their income tax assessment particulars. In response, the assessee furnished the list of deposits raised....
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.... had received deposits from 129 depositors below Rs.5,00,000/- per person which alone comes to Rs.1,88,73,000/- All the deposits were received in accordance with provisions of Section 58A of the Companies Act, 1956 and related rules framed thereon. The entire interest paid on such deposits was duly subjected to deduction of tax at source. 6.3. As stated earlier, the ld. AO made an addition of Rs.2,03,95,000/- towards deposits not explained by the assessee. The ld. CIT(A) gave further credit in respect of deposits received from the following persons :- i) Vidhi Jatin Shah - Rs. 5,07,000/- ii) Isha Jatin Shah - Rs. 5,15,000/- iii) Pradhyumn Shah - Rs. 5,00,000/- Total Rs. 15,22,000/- 6.4. Hence, what is remaining is only Rs.1,88,73,000/- which represents deposits from 129 depositors where deposit from each person is less than Rs. 5,00,000/-. Since the details for the same were not on record, the ld. CIT(A) confirmed the addition made u/s.68 in respect of the same. 6.5. The ld. AR before us pleaded that the entire list of deposits including the list of depositors who had invested less than Rs 5,00,000/- were also provided to the ld. AO. Moreover, in re....
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....ellaneous income by treating the same as profits and gains derived from eligible industrial undertaking. 7.1. We have heard rival submissions and perused the materials available on record. We find that assessee had claimed deduction u/s.80IB of the Act as under :- (i) For Masat (Silvassa) Unit Rs.125,43,599/- (ii) For Pondicherry Unit Rs.109,34,445/- Total Rs. 234,78,045/- 7.2. The deduction u/s.80IB was claimed @30% of profits and gains of industrial undertaking located in the backward district. The ld. AO observed that in respect of sale of scrap, exchange gain, sundry balances written back and miscellaneous income, they are not profits derived from the manufacturing activity and hence not eligible for deduction u/s.80IB of the Act. The assessee submitted that the sale of scrap, exchange gain, sundry balances written back and miscellaneous income are totally business receipts derived from the manufacturing activity and hence, would be eligible for deduction u/s.80IB of the Act. We find that the Hon'ble Jurisdictional High court in the case of CIT vs. Rachna Udhyog Ltd., reported in 230 CTR 72 where the issue of exchange rate difference in the context o....
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....ed in pages 69-75 of the paper book. We find that there is an unsecured loan borrowing of Rs. 5,51,09,378/- as on 31/03/2010 in Masat Unit and interest and financing charges of Rs. 36,84,925/- has already been allocated to Masat Unit by the assessee company in the division wise profit and loss account. We find that the aforesaid unsecured loans were used for procuring assets for Masat Unit and accordingly, the interest paid on such loans were already debited in the books of Masat Unit and deduction u/s.80IB claimed accordingly. Hence, there is no need for further allocation of interest to Masat Unit in the sum of Rs. 30,06,101/- as done by the ld. AO. There is no bank borrowing made by the Masat Unit as is apparent from the balance sheet of Masat Unit. Hence, the general interest paid on bank borrowings, fixed deposit interests and other financing charges could not be allocated to Masat Unit while computing deduction u/s. 80IB of the Act. 8.3. Similarly, we find from the division wise balance sheet, profit and loss account with its schedules for Pondicherry Unit, i.e eligible Unit, it has unsecured loan borrowings of Rs. 9,10,98,492/- on which interest of Rs. 2,99,171/- was paid....
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....made sales to other Units of the assessee. The ld. AO observed that the profits arising from these sales are not included in the overall profits of the assessee as no profits are earned by making sales to other Units of the assessee on the principle of mutuality. Accordingly, the ld. AO concluded that while computing the qualifying profits, these profits have to be excluded as the same do not enter into the assessee's gross total income. Therefore, the ld. AO estimated the profits in the ratio of net profit before depreciation, interest and tax to the sales ratio. The assessee pleaded that all the transactions in respect of inter-Unit purchases and sales were carried out at market value increase with provisions of Section 80IA(8) r.w.s. 80IB(13) of the Act. This submission of the assessee is not disputed by the ld. AO as is evident from para 21 of his assessment order. 10.2. The ld. AO observed that the transfer price between inter-Units in respect of purchases and sales should be made at cost and hence, sought to exclude from the income of Masat Unit a sum of Rs. 1,07,749/- and from Pondicherry Unit a sum of Rs. 99,29,791/-. Similarly, in respect of purchases made by 80IB U....
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....cturing activity of 80IB Units. It was further submitted that turnover of Masat Unit and Pondicherry Unit was Rs. 18.71 Crores and Rs. 23.82 Crores respectively. The processing charges for Masat Unit and Pondicherry Unit were Rs. 1.06 Crores and 0.88 Crores respectively, which is not material when compared to its respective turnover. The ld. AO however, did not heed to the aforesaid contentions and proceeded to reduce Rs. 45,88,822/- and Rs. 23,44,293/- relating to processing charges in respect of Masat Unit and Pondicherry Unit respectively. 11.2. We find that expression "manufacture" has been defined in Section 2(29BA) of the Act as under :- "[(29BA) "manufacture", with its grammatical variations, means a change in a non-living physical object or article or thing,- (a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or (b) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure;]" 11.3. From the aforesaid definition, it is evident that all the activities relating t....