TaxTMI 
TaxTMI 
2025 (3) TMI 2020
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....ls filed by the Revenue and four cross objections of assessee, pertain to the same assessee and identical and common issues are involved, therefore, these appeals of revenue and cross objections of assessee, have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity. 3. Although, these appeals filed by the Revenue and Cross-Objections filed by the Assessee, contain multiple ground of appeals. However, at the time of hearing we have carefully perused all the grounds raised by the Revenue as well as cross objections raised by the Assessee. Most of the grounds raised by the Revenue as well as Assessee, are either academic in nature or contentious in nature. However, to meet the end of justice, we confine ourselves to the core of the controversy and main grievances of Revenue and the Assessee as well. With this background, we summarize and concise the grounds raised by the Revenue as well as Assessee as follows: (i) Ground No. 1. The ld. CIT(A) has erred in law and on facts in deleting the addition made on account of washing/ handling loss of salt of Rs. 2,67,03,424/-. This is Ground No. 1 of revenue's ....
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.... is ground No. 4 of revenue's appeal in ITA No. 235/RJT/2016, for assessment year 2011-12] (vi) Ground No. 6. The ld. CIT(A) has erred in law and on facts in deleting the addition made on account of sale made to group concern of Rs. 33,56,700/-. [ This is ground No. 5, of revenue's appeal in ITA No. 235/ RJT/2016, for assessment year 2011-12, and Ground No. 3, in revenue's appeal in ITA No. 236/RJT/2016, for assessment year 2012-13, at Rs. 2,29,30,740/-] (vii) Ground No. 7. The ld. CIT(A) has erred in law and on facts in allowing the lumpsum amount paid for facilitating access to windmill amounting to Rs. 29,78,100/-, to be amortized for the period of 20 years, which comes to Rs. 1,48,905/- per year (2978100/20) [This ground No. 3, is raised by the revenue, in ITA No. 366/RJT/2017, for assessment year 2013-14.] (viii) Ground No. 8. The ld. CIT(A) has erred in law and on facts in allowing the Service Tax relatable to rejection of refund of service tax in the previous year, relevant to the year, under appeal, amounting to Rs. 18,27,557/-, without appreciating the fact that this is a prior period expenses. [This is ground No. 4 of revenue's a....
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....ock of salt. During the year, the company has claimed washing loss of 58724 MT ie. 10% on production of 587239 MT and washing loss of 107675 MT, which is 20% of net production 528515 MT (587239 MT less washage loss 58724 MT). In absence of proper stock records at salt manufacturing site and evidences for such claim, it is quite difficult to consider the claim as there is no stock data physically maintained at any stage. Therefore, the assessing officer issued a show-cause notice to the assessee, asking the assessee, to furnish necessary documentary evidences and day to day basic production, wastage loss accounts maintained at site, if any. 8. In response to the notice of the assessing officer, the assessee submitted the following written submission with documentary evidences before the assessing officer, which is reproduced below. "At the outset we submit that shortage/loss of quantity occurs at two different stages. At first stage, while extracting the salt from salt pan/maffer & shifting the same to the platform (production stage) where salt is stacked in heaps and thereafter in transferring the same to washery unit where washing process of the salt is carried out. As....
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....es of statements for the Financial Year 2008-09 for your kind perusal and record. We submit that the Officers of the Salt Department also make one or two surprise inspections of the she and check the stock on hand at the time of visit. Based on these statement we have prepared a summary statement which is enclosed herewith for your perusal and record. 9. However, the assessing officer rejected the above reply of the assessee and observed that the contention of the assessee that the handling loss/washing loss should be allowed on the total turnover of the assessee and the actual shortage as per quantity details comes to 4.71%, was not acceptable because the shortage has to be worked out in respect of the production. As per the details, for the year under consideration, the production of salt was 5,87,239, as against shortage of 1,66,399, has been claimed, which is 28.33% of the production of salt. Therefore, the washing loss claimed by the assessee was restricted to 10% and the excess shortage @ 18.33(28.33% - 10%) claimed by the assessee was disallowed. The disallowance of excess washing loss worked out, by the assessing officer is as under: Production (MT) Handling / Wash....
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....acturing loss is likely in the range of 20.16% to 29.26%, which thus clearly leads to an inescapable conclusion of arbitrariness on the part of the assessing officer. The ld CIT(A) also noted that the business reality of the assessee, that loss also occurs on account of natural forces, loading, unloading and inaccuracy inherent in the transactions due to volumetric quantification, and such loss is in the range of 10% on the overall quantity transacted by the assessee, has also been completely brushed aside by the assessing officer. The ld. CIT(A) observed that the specific business realities of assessee's business - namely, high physical volume and low monetary value per metric ton of the goods transacted, and also stocks getting stored in open and also, the submission before the assessing officer that the quantity loss is a partially derived figure, noticing of higher washing loss or "wide variation in loss" per se can only, if at all, be a starting point for further probe, enquiry and marshalling of evidences by the assessing officer and certainly not in itself a ground for making any addition. The ld CIT(A) noted that the observation of the assessing officer that day-to-day ....
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..../Ahd/2016 for A.Y. 2012-13). 50. Brief facts, qua the issue are that during the assessment proceedings, the assessing officer noticed the discrepancy pointed out by the special auditor and observed that assessee has claimed handling/spillage/wastage loss from salt trading. During the year, the firm has claimed handling/spillage/wastage loss of 18,092 M.T. During the course of audit, the firm was asked to provide explanation on such claim with proper evidences. However, no satisfactory written explanation and evidences were provided by the assessee. Therefore, assessing officer, issued a show-cause notice stating that why the handling/spillage/wastage loss of 18,092 M.T. may not be disallowed being non- genuine. 51. In response, to the notice of the assessing officer, the assessee submitted its reply before the assessing officer with documentary evidences, which is reproduced below: "The Assessee- firm submits that they are engaged in the business of trading of goods and commodity. During the year under consideration, they had opening stock and purchases, aggregate quantity of which came to 8,34,887.338 Mt. After considering the sales and closing stock agg....
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....cess of washing and consequential loss of stock with their own eyes it is really incomprehensible that the Special Auditor has raised the issue and that too by working out in illogical manner highly exaggerated percentage of shortage." 52. However, the assessing officer rejected the above contention of the assessee and observed that during the course of special audit, the assessee has not submitted any documentary evidence in respect handling/spillage/wastage loss from Salt trading of 18,092 MT. Further, the reply of the assessee in this regard is general nature. The assessee has claimed 18,092 MT of handling/Spillage/wastage loss. The value of such goods at closing rate comes to Rs. 750/- per MT; therefore, the claim of handling/Spillage/wastage loss work out to Rs. 1,35,69,000/-, (18,092 x Rs. 750), hence, the same was disallowed by the assessing officer and added to the total income of the assessee. 53. Aggrieved, by the addition made by the assessing officer, the assessee carried the matter in appeal before the learned CIT(A), who has deleted the addition made by the assessing officer. The ld CIT(A) observed that the stock of salt is kept in open and obviously....
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....or such claim, it is quite difficult to consider the claim. The assessing officer called for explanation of the assessee on the issue and the assessee's detailed reply has been reproduced by the assessing officer in the assessment order. It was submitted before the assessing officer that on a total turnover of 8.16 lacs MT, a shortage/handling loss of 18,092 MT, works out only to 2.17% and which is quite reasonable and incidental to the business of the assessee. It was further submitted that the salt is kept in heaps in open areas and the spillage/wastage is a necessary aspect of assessee's business. Moreover, the quantity in heap is arrived at only on the basis of physical measurement and experienced estimate, and it is impossible to physically weigh the quantity, the stock of salt, either at the time of purchase or at the time of sale or at the time of quantifying the same at the year end. It has been categorically submitted further by the assessee before the assessing officer that the position of stock in heap form and the watering/washing of the salt in such heap form was shown to the team of Special Auditors twice and that thereafter query was raised by the Special Aud....
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....in previous years or subsequent years. In view of this, the assessee was right in his submission that the rejection of claim is arbitrary and not justified in law. Accordingly, it was held by ld. CIT(A) that there is no merit in the action of the assessing officer and therefore the addition of Rs. 1,35,69,000/- was deleted by ld CIT(A). In the wake of above delineation, we see no error in the conclusion drawn by the CIT(A) in this regard. The CIT(A) in our view, has rightly deleted the addition. We, thus, decline to interfere with the conclusion so drawn by the CIT(A) whose order is under challenge by the revenue. Therefore, based on these facts and circumstances, we dismiss the summarise and concise ground No. 3 of the revenue." 14. We have gone through the findings of the ld. CIT(A), as noted above, and observed that there is no any infirmity in the conclusion reached by the ld. CIT(A). Therefore, after having regard to the given facts and circumstances of the case, it is difficult to differ with the findings of the ld.CIT(A). We also find that the issue is squarely covered in favour of the assessee by the decision of the Coordinate Bench, in assessee's own group case, ....
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....from M/s. Nidhi Mining. The assessing officer, therefore, issued a show- cause notice to the assessee, to give justification of high rate to M/s. Terapanth Foods Ltd., along with necessary documentary evidences. 18. In response, to the above show-cause notice, the assessee, submitted written submission along with evidences, before the assessing officer, which are reproduced below: "During the year under consideration the assessee has purchased Iron Ore from M/s. Nidhi Mining Pvt. Ltd. & Terapanth Foods Limited. We have made purchase deal because according to our market enquiry at that time the said price was found to be not more than prevailing market price. The price difference can occur for variety of reasons including the bargaining capacity of the respective concerns like, its need for sale or our need for purchase, quality difference, location etc. All our Purchases and Sales are fully vouched and paid for through account Payee Cheques and therefore they are genuine and cannot be doubted." 19. However, the assessing officer rejected the contention of the assessee and observed that the reasons given by the assessee for purchase from M/S Terapanth Foods Ltd, @ of ....
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....he revenue argued that it has been pointed out by the Special Auditor that the iron-ore of 1,41,890.76 MT worth Rs. 15,83,48,463/- was purchased from group concerns" namely, M/s Terapanth Foods Ltd and M/s Nidhi Mining during the year. The assessing officer, on the basis of the observation of the Special Auditor, called upon the assessee to explain the reason as to why the purchases from Terapanth Foods Ltd, has been made at a higher average price of Rs. 1217.23 per MT as against average purchase price of only Rs. 920.98, from M/s Nidhi Mining. The assessee has failed to provide the reasonable explanation, therefore addition made by the assessing officer may be sustained. 23. On the other hand, ld. Counsel for the assessee pleaded that the price difference as observed by the assessing officer can occur for variety of reasons, including the business needs, quality of goods, location of goods and bargaining capacity of the parties. The ld Counsel stated that all the purchases and sales are fully vouched and paid by account payee cheques and the transactions are completely genuine, therefore, no disallowance, as contemplated by the assessing officer could be made. The ld Counsel al....
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.... accounts, as were available in the books of accounts audited by the Special Auditor, but are merely partial and truncated copies (extracts) of the original accounts, giving only partial information about the transactions. 25. The ld CIT(A) observed that in numerous transactions with both the parties during the year, rate of purchase from Nidhi Mining has been in the range of Rs. 3200 to Rs. 450 per MT during the year, and similarly rate of purchase from Terapanth Foods has been in the range of Rs. 3200 to Rs. 800 during the year, and therefore, the Special Auditor's observation based on "average purchase price" and the assessing officer's addition based on such observation are consequence of uncalled for and distorted perspective on facts, and hence also the addition based on such misconceived and erroneous view on facts, cannot be sustained. During the appellate proceedings, the assessee, pointed out from the copy of iron-ore purchases account, that purchases from Nidhi Mining Pvt. Ltd, at Rs. 450 per MT on 20/2/2009 and 28/2/2009 for a total of 20750.85 MT are of low grade iron-ore, as against better quality in other transactions, and therefore, there is no rationale ....
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....rns could be below or above the market rate or vary for a variety of reasons, and therefore, there is no justification in law to make the addition as "inflated purchases" merely by comparing the purchase price from two group concerns, without bringing in the market rate. The ld CIT(A) also noticed that the range of purchase rate of iron-ore from both the group concerns, the very act of the assessing officer in taking the average rate for comparing the purchases during the whole year has no basis or justification. The ld CIT(A) also observed that the finding of the assessing officer to the effect that purchase from Terapanth Foods is at inflated rate is without any evidence on record or basis and ld CIT(A) further noted that excepting transactions specified u/s 40A(2)(b) of the Act, the assessing officer has indeed no authority to substitute the rate of the well documented/evidenced transaction(s) recorded in audited books by arbitrarily holding the purchases to be at "inflated rates" without bringing in any evidence of receipt back of part of the purchase price in cash or otherwise. Based on these facts and circumstances, the ld CIT(A) held that the addition of Rs. 2,76,70,570/- is....
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....f goods and bargaining capacity of the parties. Besides, except the transactions, specified u/s 40A(2)(b) of the Act, the assessing officer has indeed no authority to substitute the rate of the well documented/evidenced transaction(s) recorded in audited books by arbitrarily holding the purchases to be at "inflated rates" without bringing in any evidence of receipt back of part of the purchase price in cash or otherwise. Therefore, after having regard to the given facts and circumstances of the case, in our considered opinion, the action of the ld CIT(A) does not warrant any interference. Accordingly, the ground of appeals of Revenue are dismissed. 29. In the result, following grounds raised by the revenue, are dismissed: (i) Ground No. 2 of revenue's appeal in ITA No. 233/RJT/2016 for assessment year 2009 -10. (ii) Ground No. 2 in revenue's appeal in ITA No. 234/RJT/2016, at Rs. 3,54,67,402/-. 30. The summarized and concise ground No. 3 of the revenue, is reproduced below for ready reference: "(iii). Ground No. 3. The ld. CIT(A) has erred in law and on facts in deleting the addition made on account of disallowance of interest under section ....
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.... the interest claim" 11. Brief facts of the issue in dispute are stated as under. During the assessment proceedings, the assessing officer called for to ascertain the quantum of secured loan used for business purpose of the concern. On verification of Accounts, it was noticed by the assessing officer that the assessee- firm has taken loan from banks on hypothecation of stock -in- trade and personal properties of partners. The firm has paid interest on such loans amounting to Rs. 3,79,17,821/-, Bank charges Rs. 18,70,159/-, loan documentation charges Rs. 625,989/-. Thus, on borrowed funds interest is given to the banks by the assessee. On verification of Bank Loan Accounts and loan accounts in the computerized accounts, it was observed by the assessing officer that the assessee- firm has given loan to some group concerns, against which there is no business transactions, hence it appears to be not for business purpose and no interest is charged on such loans. Therefore, during the assessment proceedings, the assessing officer, issued notice to the assessee, asking the assessee to furnish the nature of transactions and immediate source of advancement of such interest free adv....
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....1961, is warranted. In respect of loans and advance given to M/s Maharaja Salt Works Co. Pvt. Ltd. it was submitted by the assessee that the assessee -firm has given advance of Rs. 2,05,00,000/- for the purchase of salt to the company. However, the said party failed to supply salt and the assessee has filed civil suit in the Civil Court, Gandhidham. As this is business advance against the purchase of goods, it should not be considered as interest free loans and advances. However, in respect of other loans and advances the assessee has not proved commercial expediency. Considering above facts, the assessing officer held that the advances were not made due to commercial expediency and for the purpose of business except in the case of M/s. Maharaja Salt Works Co. Pvt. Ltd. The assessee has not proved the nexus that non- interest bearing fund have been utilized for the purpose of giving non- interest bearing loans and advances and have not discharged onus cast upon it. Therefore, the corresponding interest @ 12% on loans and advance which works out to Rs. 68,13,104/- are as under : SN Name of Concerns Corresponding interest @ 12% on loans and advances (Amount in Rs.) 1 F....
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.... established the commercial expediency. The learned DR thus reiterated that the assessee has not discharged the onus of proving that interest free advances have gone out for interest free funds of the assessee. The learned DR for the revenue, relied on the following decisions: (i) Decision of Hon'ble Allahabad High Court in the case of CIT v. Sahu Enterprise (P.) Ltd. reported in (2013) 352 ITR 8 (Allahabad). (ii). Decision of Hon'ble ITAT, Hyderabad in the case of Sushee Hi Tech Constructions (P.) Ltd. v. DCIT reported in (2013) 33 taxman.com 236 (Hyd.). (iii) Decision of Hon'ble ITAT, Chandigarh in the case of ACIT v. Spray Engineering Devices Ltd. reported in (2012) 23 taxman.com 267 (Chandigarh). (iv) The Hon'ble ITAT, Delhi in the case of ACIT v. Samrat Rice Mills (P.) Ltd. reported in (2012) 23 taxman.com 350 (Delhi). (v).Hon'ble Delhi High Court in the case of Punjab Stainless Steel Inds. V. CIT, reported in (2010) 324 ITR (Delhi). (vi).The Hon'ble Delhi High Court in the case of CIT v. Orissa Cement Ltd., reported in (2002) 258 ITR 365 (Delhi). (vii) The Hon'ble Kerala High Court in the case of CIT v. V.I. Baby ....
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....terest-free advances given to parties of Rs. 4,35,00,000/-. This included Rs. 2,15,00,000/- given to Maharaja Salt Works, as advance for purchase of salt. The said party failed to supply salt. Therefore, a civil suit is filed against Maharaja Salt Works for recovery. Thus, the advance was given for commercial consideration for the purpose of business. There was also no instance of relationship attracting section 40A(2)(b) of the Act. The assessee also furnished the bank accounts, as per books, statement of accounts, from the banks and accounts of these concerns, as called for by the assessing officer. The assessee had also supplied detailed statement showing secured loans, interest-free funds advances etc. by letter filed on 20-11-2014 for all the financial years 2005-06 to 2011-12, to examine as a bird eye, overall position of the group. The assessing officer in his "conclusion" has found that the claim disallowable, making vague observation that looking to the capital and reserved surplus and the investment in fixed assets it was found by the assessing officer that no interest-free funds were available with the assessee for giving interest-free advances to these concerns. Thus, a....
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....e following binding judgments of the Jurisdictional High Court of Gujarat and others, which are mentioned below: (i). ACIT. v. Gujarat Narmada Valley Fertilizers Co. Ltd. (20 14)222 Taxman 28 (Mag)/42 taxmann.com 579 (Guj.)(HC) (ii). CIT. v. Amod Stamping (P.) Ltd. (2014) 223 Taxman 256 (Guj.)(HC) (iii). CIT v. Rajendra Brothers (2014)52 taxmann.com 334/(2015) 228 Taxman 348(Mag.) (Guj.)(HC) (iv). CIT v. Shree Rama Multi Tech Ltd. (2013) 219 Taxman 162 (Mag.) (Guj.)(HC) (v). CIT v. R.L. Kalthia Engineering & Automobiles (P.) Ltd. (2013) 215 Taxman 9 (Mag.) (Guj.)(HC) (vi). CIT v. Mahanagar Gas Ltd. (2014) 221 Taxman 80 (Mag.) / 42 taxmann.com 40 (Bom.)(HC) (vii). Reliance Industries.v. Addl. ACIT (2014) 159 TTJ 349/55 SOT 8 (Mum.) (Trib.). 22. Learned Counsel further submitted that a chart showing interest free advances and interest free funds available, which is placed at page number 11 of the order of the ld. CIT(A), was submitted by the assessee before the Ld. CIT(A) to explain the overall position of the group and the figures mentioned in that chart were already available before the assessing officer, there....
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....is obliged to allow the payment of interest on loans taken for business purpose. If, however, the Assessing Officer seeks to make disallowance of interest by invoking the provision of section 36(1)(iii) of the Act, it is for the assessing officer to establish that interest is paid on the loans, not used for business or that it is diverted for non-business purpose, provided the assessee has submitted all the details before the assessing officer for this purpose, as and when called by the assessing officer, then burden shifts on the assessing officer to explain the assessee that based on the documents and evidences interest bearing funds were used by the assessee for giving interest free advances for non-business purposes. In the assessee's case under consideration, the assessee submitted details and documents and explained before the assessing officer that had enough interest free funds available for giving interest free advances. There is no failure on the part of the assessee to submit relevant documents and evidences before the assessing officer to prove that sufficient interest free funds available in the Balance Sheet of the assessee. We find that in the assessee's case....
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....en for business expediency". The assessing officer has failed to realize that the obligation to establish business expediency would arise on the part of the assessee only when the assessing officer has discharged his obligation to show (provided the assessee has filed all documents and evidences, as required by the assessing officer, to explain the interest free funds) that any part of interest-bearing loans have been diverted for non-business purposes. In this regard, reliance is placed upon the judgment of Hon'ble Delhi High Court, reported in (2011) 331 ITR 0502, wherein it was held as follows: "12. In the instant case, from the orders of the CIT(A) and that of Tribunal, as reproduced above, in paras 3 and 6, we note that the assessee was maintaining a bank account with mixed common funds in which all deposits and withdrawals were made. There was no specific instance noted by the assessing officer in respect of any direct nexus between the borrowed fund and the said advances made to the subsidiaries. The assessing officer had made general observations without going into the depth of the matter and without pointing out any specific instance where an interest- bearing....
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.... Salt Works and Allied Industries and (iii) Kandla Agro& Chemicals Pvt. Ltd. Therefore, ld Counsel argued that assessee have sufficient interest-free funds that the assessee has used for interest-free advances. Even before the CIT(A), assessee mentioned that assessee has huge interest free funds received from sister concerns. The assessee submitted ledger accounts of these three sister concerns, Friends & Friends Shipping Pvt. Ltd., Friends Salt Works and Allied Industries and Kandla Agro & Chemicals Pvt. Ltd., with corresponding bank-books to corroborate the transactions in the ledger accounts and working of interest that would have been payable at the rate of 12% (applied by the assessing officer) but not actually paid. This would make it amply clear that the Group as a whole followed a policy not charge interest when funds are made available to sister concerns, as these advances are out of interest free funds. 27. We find that learned CIT(A) gave importance to the fact that all the Group concerns happened to make such interest-free advances to one or the other concern, as per the needs of the business of the Group, which is more or less the same and co....
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....n 91 ITR 544 (SC), wherein it was held that "it is not open to the department to prescribe what expenditure an assessee should incur and in what circumstances he should incur the expenditure. 29. We find that assessee pleaded before the assessing that advances are out of interest-free funds available with the assessee and filed copy of accounts of parties and bank statements and subsequently also pleaded business expediency. The ld CIT(A) noted that all the business concerns of the group are assessed at the maximum marginal rate and therefore question of inference of any tax avoidance does not arise. It is also stated that the different concerns of the group have interdependent business operations and business activity of one concern cannot be carried out without availing services from other concerns. In this background, the requirements of business fund by each concern have to be examined. If one concern of the group faces urgent requirement of fund and the other concern is in a position to provide the same so that business interest of both the concerns are protected, any amount advanced without charging interest to/from such concerns is necessarily for the purpose of bus....
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....iew of commercial expediency and not from the point of view whether the amount was advanced for earning profits......" 30. During the course of hearing, based on the audited balance-sheets for respective years, the ld. Counsel has also submitted the following position of interest-free funds from year to year to buttress the argument that the assessing, in the face of submissions made, and easily verifiable from the records available with him and produced before him, clearly erred in not appreciating the argument canvassed before him that the interest free advances have been made clearly out of interest-free funds available with the assessee and that there really remained nothing further to be established. The assessing has ignored this fact and has taken recourse to section 36(1)(iii) by making disallowance in all connected group cases. Therefore, we find that judgements on which ld DR for the revenue has relied, are distinguishable on facts and do not apply to the assessee under consideration. We find that the disallowance is made by the assessing officer by invoking section 36(1)(iii) of the Act. From the data furnished it would be seen that the assessee has EPC/PCFC loa....
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....g officer has not demonstrated the personal or non-business or purely charitable use by the recipient. For that reliance is placed on the judgement of the jurisdictional High Court of Gujarat in the case of RL Kalthia Engineering & Automobiles (P.) Ltd,[2013] 33 taxmann.com 14 (Gujarat), wherein it was held as follows: "6. It is well established proposition that when the Revenue fails to establish any nexus between the borrowed funds and the funds diverted/lent, any denial of allowances of interest under Section 36[1](iii) is not permissible. In the instant case, as both the authorities have held concurrently on the basis of material available that sufficient amount of interest-free funds were available with the assessee-respondent and therefore also, there is no justification in interfering with the decision of both these authorities. Resultantly, the question of law proposed is answered accordingly." 32. Deployment of fund available with one concern of the group, whether or not interest bearing, to other sister concern, to meet with business requirements of later with which the former has extensive business, cannot be termed as used not for business purpose as t....
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....enue is reproduced below for ready reference: (iv) Ground No. 4. The ld. CIT(A) has erred in law and on facts in deleting the addition made on account of Brokerage/ Commission expenses of Rs. 1,76,35,013/-. [This is ground No. 3 of revenue's appeal in ITA No. 235/RJT/2016, for assessment year 2011-12]. 35. Brief facts qua the ground No. 4 of Revenue are that assessing officer made addition on account of Brokerage/ Commission expenses of Rs. 1,76,35,013/-. The assessing officer has discussed the issue in para 5 of assessment order. Based on the observations of the Special Auditor, the assessing officer called upon the assessee to explain the fact as to the expenses of Rs. 1,76,35,013/-, debited on 30/03/2011 and credited to Expenses Payable Account with narration that US $3,98,711.57 is shown payable as commission and brokerage on export of raw cotton. The reply of the assessee has been reproduced by the assessing officer. The assessee submitted before the assessing officer that the amount is rightly claimed as an expenditure and the same is payable, as per the agreed terms, to the agents based in Dubai, Indonesia and Pakistan who found buyers for the export effected....
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.... relying on the AAR decision in the case of SKF Boilers and Dryers Pvt. Ltd (supra). Therefore, learned Counsel, contended that order passed by the ld. CIT(A) may upheld. 39. We have considered the rival submissions and perused the relevant finding given in the impugned orders. We find that assessing officer has in his conclusion part stated that the assessee's submission is not acceptable as provision of Section 5(2)(b) r.w.s.9(1) of the Act, deals with scope of total income whereby the income of non-resident includes all income from whatever source derived, which accrues or arises or deemed to accrue or arises in India. According to assessing officer source of commission income earned by non-resident is in India, hence provision of Section 195 of the Act would be applicable, for which he relies on the decision of AAR - New Delhi in the case of SKF Boilers and Driers P. Ltd. (2012) 15 taxmann.com 325. Accordingly the assessing officer disallowed the expense of Rs. 1,76,35,013/- on the ground that the tax was required to be deducted u/s 195 of the Act. 40. We find that while the assessing officer has agreed that the claim of brokerage was genuine expense and not a provisi....
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....icer and is available on page no. 17 of the paper book. It was explained therein that the amount of Rs. 1,16,88,834/- includes an amount of Rs. 39,84,974/- being the amount adjusted by New Manglore Port Trust, in respect of demand, vide their letter dated 22/12/2010, towards differential license fees for preceding periods in respect of plot allotted to the assessee by the Port. The copy of this letter was enclosed with the submission (paper book page no.62-64), pointing out that the communication for liability, though pertaining to the period w.e.f. 7/2/2007, was received during FY 2010-11, the liability has been accepted by the assessee and therefore, the amount has rightly been claimed. The assessee put reliance before the assessing officer on Jurisdictional High Court judgements in Saurashtra Cement & Chemical Industries Ltd. and Mahindra Mills Ltd. reported in 213 ITR 523 and 334 ITR 254 respectively for the proposition that the claim crystallized during the year under reference by way of receipt of demand notice though pertaining to previous period, is an allowable claim. 44. Similarly, the other component of the claim to the tune of Rs. 77,03,859/- was explained before the....
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....cepted by the assessee and is undisputed, while the balance amount of Rs. 18,27,557/- has been contested in higher forum and therefore, this part of liability not having crystallized in law, is rightly disallowed by the assessing officer. In sum total, the assessee pleaded before the ld. CIT(A) that liability to the extent of Rs. 98,61,277/- has crystallized during the year on account of the communications for quantified liability having been received from Manglore Port Trust and Service Tax Department during the period under reference, which have not been further contested and therefore, the assessing officer has erred in not following the binding decisions in the case of Saurashtra Cement and Mahindra Mills cited before him. The ld CIT(A) noticed the binding decision in Saurashtra Cement & Chemical Industries Ltd. 213 ITR 523, reproduced by the assessing officer on page 16 of his order, clearly lays down a rule that once the liability though pertaining to previous period has arisen during the previous year on account of either the receipt of communication raising the liability or on account of rejection of the claim of refund, the liability is supposed to have arisen during the y....
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....ring the period under reference, though prima facie, the assessee might have received the final communication of rejection subsequent to the dates mentioned in the table, the copies of which have not been submitted by the assessee. In view of this and in view of the material available on record, the ld CIT(A) held that the liability for an amount of Rs. 39,84,974/- (Manglore Port Trust) and Rs. 16,04,192/- (service tax refund rejection) totalling to Rs. 55,89,166/- is evidenced to have crystallized during the year under reference and hence clearly allowable u/s 37(1) of the Act. It is further held that the liability of an amount of Rs. 18,27,557/- being contested by the assessee before higher forum has not crystallized in law during the current period and therefore, claim of expenditure to this extent has rightly been rejected by the assessing officer. With regard to the balance amount of claim made by the assessee i.e. Rs. 38,72,111/-, the assessing officer is directed to verify on the basis of documents to be submitted by the assessee whether the final orders of rejection of claims of refund have been issued by the Competent Authority during F.Y. 2010-11. If the assessee is able ....
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....ely and further that sale made to Terapanth Foods Ltd, is at relatively lesser rate. On the basis of this observation of the Special Auditor, the assessing officer called upon the assessee to explain. The assessee's reply has been reproduced by the Ld. assessing officer on page 18 of the order. The assessee submitted before the assessing officer that the sales are fully vouched, none of the parties is "relative within the meaning of section 40A(2)(b) of the Act, and that the transactions are genuine and therefore, no addition would be justified. Moreover, the assessee submitted that higher rate is for washed salt and lower rate is for unwashed salt and therefore, no adverse inference merely on the basis of rate of sale can and should be drawn. The assessing officer, however, under conclusion part, observed that assessee has "not furnished any documentary evidence" for the sale of washed salt to Kandla Export & Friends Salt Works and that of unwashed salt to Terapanth Foods Pvt. Ltd, and therefore, he brings to tax the amount of Rs. 33,56,700/- @ Rs. 75 on quantity "sold at lesser rate to Terapanth Foods Pvt. Ltd. 54. Aggrieved by the order of the assessing officer, the asses....
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....end, the assessee submitted that there is no provision in the Act authorizing the assessing officer to make the addition, on a conjecture that the assessee has while making a sale, not made appropriate profit, and as such the addition is wholly arbitrary. The ld. CIT(A) noticed that none of the parties is a 'relative' within the meaning of section 40A(2)(b) of the Act, and thus, there is no reason or material with the assessing officer for the conclusion that the transaction is at a higher or lower rate The simple truth is that the assessee, as indeed any assessee, is free to transact its affairs as best suited to itself and no one can be compelled by the assessing officer to maximize its profits. Moreover, and in any case, neither Kandia Exports Corporation nor Friends Salt Works & Allied Industries Ltd, nor Terapanth Foods Pvt. Ltd, are relative of the assessee, within the meaning of section 40A(2)(b) of the Act. Even if they are relative, section 40A(2)(b) of the Act, can be applied only with respect to higher expenditure and not with respect to lesser receipt of sale consideration. The ld CIT(A) also noticed that there is valid basis for different rates of sale. Moreove....
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.... for the assessee's explanation as to why depreciation on land cost should not be disallowed and why the depreciation on wind mill should not be computed as per opening written down value (WDV) of the last year. The assessee submitted before the assessing officer that they have claimed depreciation @ 80% on the charges paid for easy and free access to the Wind Mill and for keeping the area vacant surrounding the lease land location of Wind Mill. Depreciation is claimed @ 80% on such charges paid in advance for several years. It was also contended that these expenses were in the nature of rent that could have been claimed as revenue expenditure admissible u/s 37(1) of the Act. It was contended that the character of expense paid as rent remains to be of revenue nature irrespective of the fact that the same is paid in advance for several years. In support of this contention the assessee relied upon the judgment of Gujarat High Court in the case of Dy. CIT V. Sun Pharmaceuticals Ind. Ltd. reported in 227 CTR (Guj) 206. The assessee accordingly requested the assessing officer to allow the entire expense as revenue expenditure u/s 37(1) of the Act, if not allowing depreciation @ 80% ....
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....epreciable asset. This also is not the case of the assessee that roads have been made on the land where the wind mill is situated and that such roads belong to the assessee. However, ld. CIT(A) agreed for the lumpsum amount paid by the assessee towards land-for facilitating access to wind mill, which can be amortized for the period involved and such amortized amount can be treated as rent and allowed u/s 37(1) of the Act. Accordingly, lumpsum amount paid amortized over 20 years which comes to Rs. 1,48,905/-, per year (on the basis of Rs. 29,78,100/20) were paid to M/s Suzlon Energy Ltd, against Invoice No. SEL/KAR/Lease/11-12/027 dated 31.03.2012 for the period of 20 Years (i.e. Rs. 29,78,100/20)) shall be allowed by the assessing officer against the depreciation originally claimed of Rs. 14,29,488/-. However the assessing officer shall also check and ensure that the cumulative amount so allowed to the assessee, which does not exceed the lumpsum amount paid to lessor or owner. We have gone through the above conclusion reached by the ld. CIT(A) and noted that there is no any infirmity in the conclusion, so reached. That being so, we decline to interfere with the order of Id. CIT(A) ....
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....far as the service tax is concerned the assessee did not make the claim as expense in view of the Notification issued by the CBEC to the effect that Service-Tax paid on export of goods would be refundable to the exporter subject to compliance of certain conditions. Therefore, the assessee had debited and claimed in earlier years only the net expenditure exclusive of Service-Tax by way of service charges in their books and the service tax component was accounted for and carried to the Balance Sheet as recoverable deposit to be claimed as refund. However, the refund claim of the assessee was rejected by the Service Tax Department. Such rejection of the claim by the Service Tax Department was ordered in respect of the claim of Rs. 77,03,859/-. Due to rejection of claim, the expense that was treated as recoverable deposit was required to be claimed as expense in the year in which it crystallized due to rejection of the claim. In the assessment proceedings, the assessee had claimed the entire amount of Rs. 77,03,859/- on the basis of rejection of claim. However, during the appellate proceedings the assessee restricted our claim to Rs. 56,59,784/- as out of Rs. 77,03,859/- only Rs. 56,59....
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....cer was directed to delete the disallowance of Rs. 16,04,192/- and for the balance of Rs. 39,84,974/- to verify whether the final orders of rejection of claims of refund have been issued by the competent Authority during FY 2010-11 and if these orders are not contested further, to consider the amount of Rs. 39,84,974/- to have crystalized during the year and to allow the same in AY 2011-12. The disallowance of the balance Rs. 18,27,557/- relatable to A. Y. 2013-14 was confirmed having not crystallized during the year. 71. The assessee submitted that the CIT(A) as the first appellate authority has co-terminus jurisdiction with the assessing officer and accordingly has jurisdiction over not only the subject matter of appeal but over the subject matter of assessment for which reliance has been placed upon the judgment of the Hon. Supreme Court reported in 66 ITR 443 quoting the judgment of the Hon. Allahabad High reported in 105 ITR 344 that "the statute provides that, once an assessment comes before the AAC, his competence is not restricted to examining those aspects of the assessment which are complained of by the assessee; his competence ranges over the whole assessment and it i....
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....s pertaining to a balance amount of Rs. 40,55,592/- are not in the nature of orders of the Competent Authority, communicating the rejection of the claim, but are in fact communications requiring further information or supporting documents from the assessee for further consideration of the claim of the refund. Thus, out of the claim of Rs 56,59,784/-, the claim pertaining to only Rs. 16,04,192/- is evidenced to be rejected by the Competent Authority and therefore having crystallized in law during the period under reference. The claim with regard to the balance amount has not been evidenced to be rejected by Competent Authority during the period under reference, though prima facie, the assessee might have received the final communication of rejection subsequent to the dates mentioned in the table, the copies of which have not been submitted by the assessee. In view of this and in view of the material available on record, I hold that the liability for an amount of Rs. 39,84,974/- (Manglore Port Trust) and Rs. 16,04,192/- (service tax refund rejection) totalling to Rs. 55,89,166/- is evidenced to have crystallized during the year under reference and hence clearly allowable u/s 37(1). I....
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....wed by the assessing officer. The assessee's failure to submit the requisite documents shall result in rejection of the claim of expenditure, partly or fully, as the case may be. Therefore, after having regard to the given facts and circumstances of the case, in our considered opinion, the action of the Ld. CIT(A) does not warrant any interference. Accordingly, the ground of appeal of the Revenue is dismissed. 74. In the result, Ground No. 4 of revenue's appeal in ITA No. 366/RJT/2017, for assessment year 2013-14, is dismissed. 75. Now we shall adjudicate the summarized and concise ground No. 1 of cross objections of the assessee, which is reproduced below for ready reference: (i) Ground No. 1. The ld. CIT(A) has erred in law and on facts in confirming the disallowance of Rs. 1,54,200/-, by treating the same, as capital expenditure, not allowable under section 35D of the Act. [This is ground No. 2 of cross objection No. 23 and ground No. 2 of cross objection No. 24.] 76. We have heard both the parties. We note that section 35D of the Income Tax Act, 1961 allows an assessee (Indian company or resident individual engaged in business) to claim a deduction for....