TaxTMI 
TaxTMI 
2026 (7) TMI 1690
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....10,39,34,238: 1. Erred on the facts and in circumstances of the case and in law, in confirming the disallowance of deduction of scrap credit given to Mahindra & Mahindra Ltd ('M&M') amounting to INR 10.39.34.238. Depreciation on Plant and Machinery - CENVAT credit denied of INR 5,16,612 2. Erred in disallowance of depreciation on CENVAT credit for AY 2005-06 amounting to INR 5.16.612. Disallowance of Provisions of INR 74,79,561 3. Erred in disallowing a sum of INR 22,72,609 in respect of provision for Excise Duty on finished goods and scrap despite of the same being paid before the filing of return of income as per the provisions of section 43B of the Act. 4. Erred in disallowing a sum of INR 45,00,000 in respect of Staff Welfare (towards performance incentive) despite of the same being paid before the filing of return of income as per the provisions of section 43B of the Act. 5. Erred in disallowing a sum of INR 6,00,000 in respect of open GRNs, which are actual business expenses and not ad-hoc provisions. 6. Erred in disallowing a sum of INR 1,06,952 in respect of stock discrepancies. Disallo....
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.... Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A), vide order dated 19.03.2013, partly allowed the appeal. Thereafter, both the assessee and the revenue filed cross-appeals before the ITAT, Mumbai Bench. The Coordinate Bench of the Tribunal, vide its order in ITA Nos. 4558/Mum/2013 and 4597/Mum/2013 dated 07.04.2017, set aside the appellate order and restored the matter to the file of the Ld. CIT(A) for fresh adjudication. Pursuant thereto, the Ld. CIT(A) passed the impugned order and upheld the additions made by the Ld. AO. Being aggrieved, the assessee has preferred the present appeal before us. 4. The Ld. AR appeared on behalf of the assessee and filed a paper book comprising pages 1 to 337, which has been taken on record. The Ld. AR advanced detailed submissions on each ground of appeal, the substance of which is summarized hereunder:- Ground No. 1:- Additions on account of scrap credit Rs. 10,39,34,238/- 5. The Ld. AR contended that the assessee is engaged in processing steel sheets into automobile body parts and earned processing charges based on the number of parts manufactured. The assessee customers included....
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.... 5) along with the journal vouchers and working of scrap credits for your reference. The bank statements showing the payment made to M&M by the company for the scrap credit is also enclosed herewith as Annexure 7 (refer page nos. 95 to 106). Further, M&M has provided confirmation about the above understanding. (refer page nos. 39 to 40 of Annexure 5). Prayer In view of the above, the company submits that disallowance of INR 10,39,34,238 is unwarranted as the scrap credit is an actual liability and not contingent as contended in the Assessment Order and hence should be deleted." 6. The Ld. DR argued and contended that during the course of hearing the written submission supporting the Ld. AO's action based on the expenses is contingent liability as the assessee issued credit note hence cannot be treated as expenditure. And the claim made only in the case of M&M not in the case of all customer. The Ld. DR invited our attention in impugned appellate order para 7.4.3. which is reproduced as below: "7.4.3 CONCLUSION Therefore, in view of the findings as discussed in Paras I, II, III, IV and V above. I find no reason to interfere with the findings of....
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.... regarded as contingent or unascertained. The documentary evidence placed on record sufficiently demonstrates the existence of a business obligation arising out of the contractual arrangement between the assessee and M&M. Mere absence of certain additional documents, as referred to by the revenue authorities, cannot negate the substantive evidences produced by the assessee, particularly when the payments have actually been made and the arrangement stands confirmed by M&M. 8. In view of the aforesaid facts and circumstances, we hold that the scrap credit amounting to Rs. 10,39,34,238/- represents an allowable business expenditure/liability incurred wholly and exclusively for the purposes of business and does not constitute a contingent liability. Accordingly, we set aside the impugned order of the Ld. CIT(A) on this issue and direct the Ld. AO to delete the addition of Rs. 10,39,34,238/-. Accordingly, Ground No. 1, raised by the assessee is allowed. Ground No. 2:- Depreciation of Plant and Machinery and CENVAT Credit disallowed amount to Rs. 5,16,612/-. 9. The Ld. DR argued that the assessee filed CENVAT credit on merits as well as on capital goods amount to Rs. 41,38,70....
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.... 252 to 258 of the factual paperbook) 63. However, the Hon'ble CIT(A) partly upheld the learned assessing officer's action merely on the basis that the Appellant has not furnished any supporting documentary evidence to substantiate that the assets had been put to use during the relevant previous year. 64. In this regard, reference is drawn towards the Tax Audit Report (refer page nos. 260-261 of the factual paperbook), containing the block of assets schedule, it can be appreciated that the details of CENVAT credit attributable to capital goods amounting to Rs. 20,72,249 being duly reduced from the cost of fixed assets as well as the dates on which the assets were put to use by the Appellant during the year have been provided and certified by the tax auditor. Prayer 65. In view of the above facts and submissions, it is requested that the disallowance of depreciation amounting to Rs. 5,16,612 on account of alleged non-reduction of CENVAT credit be kindly deleted in full. 66. Without prejudice to the above, in case if your Honour is not agreeable with the Appellant's contentions that the assets have been put to use during the ye....
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....revious year. However, the Tax Audit Report contains details of additions to the block of assets along with the dates on which such assets were put to use, and the same has not been controverted by the revenue through any cogent material. Except for making a general observation in the remand proceedings, the revenue has not brought any evidence on record to demonstrate that the assets were not put to use during the year under consideration. In our considered view, once the assessee has demonstrated that only the CENVAT credit relatable to capital goods formed part of the block of assets and such amount has already been reduced from the cost of fixed assets, there remains no basis for reducing the balance credit relatable to tools, spares and stores from the block of assets. The approach adopted by the Ld. AO in treating the entire CENVAT credit as relatable to fixed assets is factually unsustainable. Consequently, the partial disallowance of depreciation sustained by the Ld. CIT(A) also cannot be upheld. Accordingly, we set aside the impugned order of the Ld. CIT(A) on this issue and direct the Ld. AO to delete the disallowance of depreciation amounting to Rs. 5,16,612/-. ....
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....oint 11] • Explanation on utilization of excise duty as on 31 March 2005 [Page 155 of factual paperbook, Point 12] • Movement of performance incentive [Page 156 of factual paperbook, Point 21] • Details of provisions for expenses provided in FY 2004-05 [Page 156 of factual paperbook, Point 33, 34] 71. The learned assessing officer vide order under section 143(3) of the Act dated 21 November 2007 made the disallowance on the following basis [refer paragraph no. 18 at page nos. 13 and 14 of the appeal set] • No explanations for the provisions have been provided by the Appellant; • Provision of excise duty on closing stock of finished goods is not allowable under section 43B of the Act, • Provision of staff welfare expenses is not allowable since the total debit in the Statement of Profit & Loss itself is for Rs. 20,38,552 and hence how can provision recognized in the Balance sheet be Rs. 45,00,000, CIT(A)'s Proceedings (First Round); 72. Aggrieved, the Appellant preferred any appeal before the Hon'ble CIT(A). 73. The Appellant, vide submission dated 3 September 20....
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....e Appellant had furnished certain details, including particulars of provisions made, information relating to the return of excisable goods, availment of CENVAT credit, and quantitative manufacturing details, no evidence was submitted to demonstrate how or when the payment for provisions were made. In the absence of proof regarding payment of the said liabilities, the Hon'ble CIT(A) held that the provisions remained unsubstantiated. Accordingly, the additions made by the Ld. AO were confirmed. [refer page nos. 70-77 of the appeal set] Summary of the learned DR's note submitted during the hearing of 12 May 2026: 80. During the course of the hearing before your Honour's on 12 May 2026, the learned DR presented his written submission supporting the learned assessing officer's action on the basis that no explanation was provided by the Appellant in connection with these provisions. Further, it mentioned that the provisions made are not ascertained and the Appellant was deriving benefit from sale of scrap while simultaneously creating provisions thereby understating the books profits. Appellant's Arguments With respect to excise dut....
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....e liabilities had crystallized during the relevant previous year. The burden to prove the allowability of the expenditure squarely rested upon the assessee, which remained un-discharged throughout the assessment as well as appellate proceedings. With regard to the provision for excise duty on closing stock amounting to Rs. 22,72,609/-, the Ld. DR contended that although the assessee claimed that the liability was allowable under section 43B of the Act on payment basis, no contemporaneous documentary evidence such as challans, bank statements, or proof of payment evidencing discharge of the liability before the due date of filing the return of income was furnished before the Ld. AO or the Ld. CIT(A). Mere reliance on excise returns and internal workings could not substitute the statutory requirement of proving actual payment. Therefore, the conditions prescribed under section 43B were not satisfied. In respect of the provision for performance incentive amounting to Rs. 45,00,000/- the Ld. DR submitted that the assessee itself had shown the amount as a provision and failed to establish that the liability had crystallized as on the balance-sheet date. It was further argued that the....
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.... to establish that the staff welfare expenses of Rs. 45,00,000/- had been paid by the appellant before the due date of filing of return. Similarly, no evidence is given for the remaining amounts also. In view of the above, I find no reason to interfere with the order of the Assessing Officer. Therefore, the addition made by the Assessing Officer are Confirmed. In the result, the ground of appeal no. 4 taken up by the appellant is DISMISSED." 15. We have heard the rival submissions and perused the material available on record. At the outset, we note that the assessee has expressly stated that Ground Nos. 5 and 6 relating to provision for opening GRNs amounting to Rs. 6,00,000/- and provision for stock discrepancies amounting to Rs. 1,06,952/- are not pressed. Accordingly, Ground Nos. 5 and 6 are dismissed as not pressed. In respect of Ground No. 3 relating to provision for excise duty on closing stock amounting to Rs. 22,72,609/-, we find that the assessee has placed on record the Tax Audit Report, excise returns and details demonstrating that the liability was discharged before the due date of filing the return of income. The liability towards excise duty is....
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....ile of Ld. CIT(A). The Ld. CIT(A) called for the remand report and assessee submitted the details of fix assets purchased along with assets put to use under each block of assets. The copy of the list is duly annexed in APB page 132. The Ld. AR contended that the aforesaid addition to fix asset had duly audited and verified by the tax auditor. Thereby the evidence that such assets are indeed put to use during the relevant subjected year. Further there is no adverse remark by the Ld. AO or the Ld. CIT(A) regarding the correctness of the tax audit report and so accordingly the disallowance of depreciation on allegation that assets were not put to use is unsustainable. 18. The Ld. DR strongly relied upon the orders of the Ld. AO and the Ld. CIT(A). It was submitted that the assessee had claimed depreciation of Rs. 22,89,974/- on building, electrical fittings, furniture & fixtures, and office equipment without furnishing adequate evidence to establish that the assets were actually put to use during the relevant previous year. The Ld. DR contended that mere inclusion of assets in the fixed asset register or Tax Audit Report does not automatically entitle the assessee to depreciation u....
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.... 1,32,01,934/- the Ld. AO asked to furnish the details of scrap generated and sold, production data for three years and monthly details of consumable and production. In absence of such information the Ld. AO held that the quantum job work could not be verified with the reference of electricity consumption, scrap generation and material uses. Accordingly, the Ld. AO treated the expenses in verifiable and suspected suppression of scrap generation. And made the disallowance 5% which comes amount to Rs. 1,32,01,994/-. During the first appellate proceeding, the Ld. CIT(A) had duly deleted the addition made by the Ld. Ld. AO on the ground that disallowance was made by the Ld. AO holding that the assessee had submitted books of accounts, and relevant details, no specific enquiry or examination of books was conducted by the Ld. AO and no discrepancies were pointed out. The expenses disallowed were direct business expenses, allowed in earlier years. The Ld. AO failed to justify them as excessive, unreasonable or unverifiable. As disallowance was addition-hoc and based on suspicious it should not be sustained. So, the ground of the assessee was allowed. The revenue had filed the appeal befor....
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....follows: Sr. No. Description Amount (Rs.) Disallowance @ 5% (Rs.) 1 Manufacturing expenses (raw material, pkg. material, and bought outs consumed) (22451377+14346922+3704934+646078) 4,11,49,311 20,57,466 2 Power of fuel expenses 1,01,08,563 5,05,428 3 Outside labour and processing charges (3446968+20933822) 2,43,80,790 12,19,040 4 Total 7,56,38,664 37,81,933 23. The Ld. DR argued and filed a short note dated 20/01/2026 which has been placed on record. The Ld. AR contended that the addition of ad-hoc disallowance of Rs. 1,32,01,934 in respect of direct expenses and staff verified expenses incurred by the assessee. The assessee was unable to submit any additional evidence before the Ld. CIT(A) and also in remand proceeding before the Ld. AO. So without any fresh evidence, only relied on books of accounts produced before the Ld. AO, addition cannot be deleted. Considering this, the Ld. DR prayed to uphold the impugned addition. 24. We have carefully considered the rival submissions and perused the material available on record. The impugned disallowance of Rs. 1,32,01,934/- was made by the Ld. AO on a purely ad hoc basis....
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....ognized after reducing excise duty, while interest income and other receipts were separately accounted for in the books. The Ld. AR contended that the Ld. AO erroneously compared the gross receipts reflected in the TDS certificates with the net turnover disclosed in the Profit & Loss Account and consequently arrived at an incorrect difference. Detailed reconciliations, TDS details, sales schedules and excise records were furnished before the first appellate authority demonstrating that the receipts appearing in the TDS certificates were duly accounted for in the books of account. It was further submitted that no additional evidence had been filed before the first appellate authority and, therefore, the allegation regarding violation of Rule 46A was factually incorrect. The Ld. AR further submitted that the Ld. CIT(A), in the second round of proceedings, accepted the reconciliation to the extent of Rs. 45,16,255/- out of total interest income of Rs. 90,21,822/-. The balance addition of Rs. 45,05,567/- was sustained merely for want of certain TDS certificates despite the fact that complete reconciliation explaining the difference was already available on record. It was argued that th....
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....ng, without disproving the reconciliation furnished by the assessee, cannot be sustained. Accordingly, the addition of Rs. 45,05,567/- is directed to be deleted. Ground Nos. 12 and 13 are allowed. Ground Nos. 14 & 15 - Disallowance of Staff Welfare Expenses - Rs. 20,38,552/- 28. The Ld. AR submitted that the staff welfare expenses amounting to Rs. 20,38,552/- were incurred wholly and exclusively for the purposes of business and pertained to employee welfare activities carried out in the ordinary course of business. It was contended that complete details of such expenditure, along with explanations regarding the nature and purpose thereof, were furnished before the Ld. AO during the assessment proceedings. The Ld. AR further submitted that no additional evidence was filed before the first appellate authority and, therefore, the allegation regarding violation of Rule 46A was misconceived. It was argued that the learned CIT(A), in the first round of proceedings, had correctly appreciated that the disallowance was made on a purely ad hoc basis without pointing out any specific defect, non-business element, or unverifiable expenditure. The subsequent confirmation of the additio....