TaxTMI 
TaxTMI 
2004 (12) TMI 289
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....learned CIT(A) has erred in law and on facts in confirming the disallowance of purchase expenses of Rs. 83,90,690 out of total purchases have been alleged bogus purchases. 3. The learned CIT(A) has erred in law and on facts in confirming the disallowance of Rs. 44,52,805 of provisions for bad debts. 4. The learned CIT(A) has erred in law and on facts in confirming the disallowance of Rs. 32,02,200 out of the interest expenses on the ground that loans and advances have been given for alleged non-business purpose without charging any interest. 5. The learned CIT(A) has erred in law and on facts in confirming the disallowance of Rs. 9,94,421 claimed under s. 35D of the Act. 6. The learned CIT(A) has erred in law and on facts in not considering the additional ground of Rs. 45,38,678 being financial charges and the same has been not allowed as revenue expenditure. 7. The learned CIT(A) has erred in law and on facts in not considering the additional ground of Rs. 64,75,000 being professional charges and the same has been not allowed as revenue expenditure. 8. The learned CIT(A) has erred in law and on facts in not considering the addi....
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....t. yr. 1998-99, wherein it had been held that the interest earned by the assessee is taxable under the head 'Income from other sources', even if it is earned during the pre-operative period and is required to be added to the total income of the assessee-company. The AO relied on the decision of the Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. vs. CIT (1997) 141 CTR (SC) 387 : (1997) 227 ITR 172 (SC), wherein the Supreme Court held that interest so earned is income from other sources and is, therefore, liable to be taxed. Following the same, the AO held that the pre-operative income of Rs. 3,27,90,125 is income from other sources and addition is accordingly made to the total income of the assessee-company. Matter was carried in appeal before the first appellate authority wherein the learned counsel for the assessee submitted that the AO has confused the two issues, namely, interest income simpliciter and income alleged as interest which is, in fact, in the nature of liquidated damages recovered or recoverable from the parties to whom advances were made for carrying out construction work and/or supply of machinery. Hence, they were in....
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....e assessee. The CIT(A) observed that the interest earned by the assessee on advances given by it for the purpose as discussed does not represent the independent source nor an investment made for earning income, but was charged by way of damages which is clearly adjusted against final bill of each of the parties. At the same time, the decision as relied on by the AO in the assessment order in the case of Tuticorin Alkali Chemicals & Fertilizers cannot be applied to the instant case, because the interest earned in that case was income from other sources and before the commencement of its business. The decision as relied on by the assessee in the case of Bokaro Steel Ltd. is also not relevant in the assessee's case, as the facts are quite distinguishable. In that case, the work of construction of the company's factory and installation of plant was in the process of completion and the company has not started any business, whereas the fact remains that the business of the assessee is a running one. In the light of above discussion, the CIT(A) treated the amount of Rs. 3,27,90,125 as income from other sources and upheld the action of the AO. 3.1 Before us the learned counsel f....
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.... not able to deliver it in time, hence, the assessee has charged interest to the party. The assessee has taken delivery of goods in the years 2000-01 and 2001-02. The assessee has also adjusted these interests in balance amount payable to the party after advances. As regards Suraksha Petrochemicals (P) Ltd., the assessee-company had given capital contract to the party for supply of various capital goods, the party could not respond in time and hence the assessee had charged interest of Rs. 65,02,500. Similar is the position in respect of other advances given to the parties for supply of capital goods. The last two parties mentioned at p. 227A of the paper book were entrusted the work of construction of factory building and development of the land of two new projects which were to be set up at Ambaliyara in Gujarat and at Pondicherry. Therefore, such interest recovered from these parties for liquidated damages cannot be added to the total income of the assessee. The issue is covered in favour of the assessee by the decision of Hon'ble Gujarat High Court in the case of CIT vs. Saurashtra Cements & Chemicals Industries Ltd. 3.2 The stand of Revenue is that assessee has not subm....
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....vidence before CIT(A) was given for the first time. In the present case, the assessee was concerned about expansion of the existing business and no new business was to be set up at Ambaliyara in Gujarat and at Pondicherry. The two projects at these places were set up for manufacturing the same items which were produced at the units at Kadi and Motibhoyan. Therefore, the ratio laid down in the decision of the Hon'ble Supreme Court in the case of Bokaro Steel Ltd. is squarely applicable. The Supreme Court has further considered this issue in the case of CIT vs. Karnataka Power Corporation (2000) 162 CTR (SC) 249 : (2001) 247 ITR 268 (SC) which was considered in the context of existing business. The learned counsel for the assessee also submitted that the case (2000) 162 CTR (SC) 249 : (2001) 247 ITR 268 (SC) has arisen from the case CIT vs. Karnataka Power Corpn. Ltd. (1994) 205 ITR 511 (Kar), wherein it was held that the High Court has given specific finding in regard to question No. 3 for expansion of running business and in that case also it was held as capital receipt. So, the case of assessee is squarely covered by the decision of Hon'ble Gujarat High Court reported in (....
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....ed at the units at Kadi and Motibhoyan in Gujarat. The Hon'ble Supreme Court in the case of Bokaro Steel Ltd. has held that where money was borrowed by company which was in process of construction and erecting its plant, the interest incurred before the commencement of production on such borrowed money can be capitalized and added to the cost of the fixed assets created as a result of such expenditure. By same reasoning, if the assessee receives any amounts which are intricately linked with the process of setting up its plant and machinery, such receipts will go to reduce the cost of its assets. These are receipts of capital nature and cannot be taxed. Hon'ble Supreme Court in the case of CIT vs. Karnal Co-operative Sugar Mills Ltd. (2000) 161 CTR (SC) 241 : (2000) 243 ITR 2 (SC) has held that the deposit of money in present case for opening credit for purchase of machinery was directly linked with purchase of plant and machinery. Accordingly, interest was held as capital receipt which would go to reduce cost of asset. It is pertinent to mention here that in Karnal Co-op. Sugar Mills Ltd., both the decisions in the cases of Tuticorin Alkali Chemicals & Fertilizers Ltd. and ....
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....ed that total purchases from M/s Sai Baba Sales Corporation have been made of Rs. 1,16,20,690 against which there were purchase and return bogus purchase returns of Rs. 32,30,000, thereby net purchase debited in the account amounts to Rs. 83,90,690. Further, it was submitted that the payments were made by account payee cheques and truck numbers have been mentioned. Therefore, the purchases themselves suggest that these cannot be said bogus purchases. The AO, considering the submissions of assessee, observed that as per specific information received vide letter dt. 28th March, 2003, from the Dy. Commr. of Sales-tax (Enforcement), the Sai Baba Sales Corporation is a bogus entity, which was only supplying bills and just by giving truck numbers and payments by account payee cheque do not in any way controvert the findings of the ST authorities. During the course of search by ST authorities at the residence of Mr. Deepak K. Gujjar, blank printed bills of M/s Sai Baba Sales Corporation were seized. The AO treated the purchases as bogus and made an addition of Rs. 83,90,690. Matter was carried in appeal before the CIT(A) wherein the learned Authorised Representative for assessee raised va....
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....guishable and it does not help the assessee. Quantitative details of raw material and finished goods, i.e., input and output do not tally. Hence, the disallowance towards bogus purchases is required to be continued. 4.3 After considering the rival submissions and going through the material on record, we find that the AO has mainly relied upon the letter dt. 28th March, 2003, received from the ST authorities. The AO has not examined Mr. Deepak K. Gujjar nor the assessee was given any opportunity of cross-examination of Shri Deepak K. Gujjar. The tax audit report filed in the paper book, particularly p. 33 at Item 9(c), wherein auditors have certified that list of books of account examined as per Annex. A at p. 40 of the compilation wherein cls. 9(b) and (c) at Sl. 7 show stock registers at pp. 38 and 39 of the paper book. Further, at item No. 28 regarding raw material particulars of which were given in Annex. P appearing at p. 65 of the paper book, wherein the auditors have clarified the quantitative details of raw material. It is not possible to work out the yield in relation to raw material because raw material used is in kilograms and finished products produced are in metres a....
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....justified its stand to falsify the transactions. Taking all the facts of the case including the case law relied on by the parties into consideration, and in view of the above discussion, we do not concur with the findings of CIT(A) and the addition in question is directed to be deleted. 5. Ground No. 3 is in regard to disallowance against provisions for bad debt of Rs. 44,52,805. The learned counsel for the assessee fairly conceded that this being provision made, is not pressed. Accordingly, ground No. 3 of assessee's appeal is dismissed as not pressed. 6. Ground No. 4 is regarding confirmation of disallowance of Rs. 32,02,200 out of interest expenses on the ground that loans and advances have been given for alleged non-business purpose without charging any interest. This issue has been discussed vide paras 13 to 15 of the assessment order and the CIT(A) has dealt the same vide para 7 of his appellate order. The learned counsel for the assessee drew our attention to pp. 133 to 138 of the paper book wherein the assessee has made written submission and the AO made notional addition of Rs. 32,02,200 on the ground that the assessee has not charged interest, which according to....
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....sessee submitted that total expenses incurred for public issue under s. 35D of the Act expenditure incurred was amounting to Rs. 10,63,81,582. The assessee gave break-up of the public issue expenses. The assessee also submitted that the allowability of expenditure has to be considered with reference to the provisions of s. 37 of the Act first and thereafter if the expenditure is found to be in nature of capital expenditure, it should be required to be amortised under s. 35D of the Act. The CIT(A) confirmed the disallowance in question. 7.1 Before us, the learned counsel for the assessee reiterated the submissions made before the authorities below and opposed their orders. The learned counsel for the assessee submitted that total expenses incurred for public issue under s. 35D of the Act was to the tune of Rs. 10,63,81,582 and the assessee had claimed 1/5th of the total amount which amounts to Rs. 2,12,76,316. On examination of the break-up of the public issue expenses furnished by the assessee, AO found that the assessee had claimed the following expenses: (i) Conference and seminar expenses 26,82,919 (ii) Guest entertainment expenses 43.419 (iii) Travell....
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....ssee. 8. Ground Nos. 6, 7 and 8 are regarding additional ground being financial charges, professional charges and upfront fees, and the same have not been allowed as revenue expenditure. During the appellate proceedings, the assessee has raised the additional grounds vide its submission dt. 17th July, 2003, which are as under: "The learned AO grossly erred in law in accepting the appellant's claim relating to capitalization of interest and incidental charges as per the details set out hereinafter, contrary to Expln. 8 to s. 43(1) of the Act, as also in the binding decision of the Hon'ble Gujarat High Court in the case of Dy. CIT vs. Core Healthcare Ltd. (2001) 169 CTR (Guj) 416 : (2001) 251 ITR 61 (Guj). He ought not to have accepted the claim for capitalization as made by the appellant but ought to have treated the impugned expenditure exigible to deduction in computing the total income of the appellant under s. 36(1)(iii) of the Act. (a) Interest and financial charges Rs. 3,37,84,348 (b) Legal and professional expenses Rs. 64,75,000 (c) Upfront fees Rs. 80,84,352." Copy of additional grounds along with submissions in this regard w....
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....CIT (1966) 60 ITR 52 (SC), wherein the issue of allowing interest as revenue expenditure is decided. It had further relied on the judgment of Bombay High Court in the case of Calico Dyeing & Printing Works vs. CIT (1958) 34 ITR 265 (Bom). Apart from this, the assessee also relied on various other decisions. The CIT(A) vide paras 13.2 and 13.3 at pp. 16 to 18 of his appellate order has observed as under: "13.2 I have carefully analysed all the decisions of various High Courts and Hon'ble Supreme Court as relied upon by the AO as well as the appellant. First of all, I take up the issue of admitting the additional ground raised by the appellant. The appellant has relied upon the three judgments of the Supreme Court, viz., Jute Corpn. of India Ltd. vs. CIT & Anr. (1990) 88 CTR (SC) 66 : (1990) 187 ITR 688 (SC), National Thermal Power Co. Ltd. vs. (1999) 157 CTR (SC) 249 : (1998) 229 ITR 383 (SC) and CIT vs. Kanpur Coal Syndicate (1964) 53 ITR 225 (SC). In the case of Kanpur Coal Syndicate, three Judge Bench of the Supreme Court held as under: 'The AAC has plenary powers in disposing of an appeal. The scope of his power is co terminus of that of ITO. He can do ....
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....dered as revenue expenses. In this regard, the AO is directed to look into the correctness of the interest charges from the Annex. 5 as given by the appellant and accordingly if it is found arithmetically correct, allow the same as revenue expenses in view of the decision of Hon'ble High Court mentioned supra. I agree with the contention of the appellant that the amendment to s. 36(1)(iii) is w.e.f. 1st April, 2004, which has been introduced by the Finance Act, 2003, which is reproduced as under: 'Provided that any amount of the interest paid in respect of capital borrowed for acquisition of an asset for extension of existing business or profession (whether capitalized in the books or account or not) for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use shall not be allowed as deduction.' The facts of the appellant's case are identical the facts of the case of Core Health and the business is already going on and the money borrowed is for its business only, though meant for expansion of its existing business. The appellant, no doubt, claimed the in....
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....191 (SC), CIT vs. Chunilal V. Mehta & Sons (P) Ltd. 1973 CTR (SC) 470 : (1971) 82 ITR 54 (SC), CIT vs. Associated Fibre & Rubber Industries (P) Ltd. (1999) 152 CTR (SC) 21 : (1999) 236 ITR 471 (SC) and State of Madras vs. G.J. Coelho (1964) 53 ITR 186 (SC). The learned counsel for the assessee contended that these are allowable expenditures as these expenses are incurred on borrowings made for the existing business and assessee had borrowed money for expansion of existing units, and hence these are covered by the decision of Hon'ble Supreme Court in the case of India Cements Ltd. vs. CIT. Those expenses were incurred towards the fund borrowed for the purposes of business. Upfront, but one-time processing loss @ 1.5 per cent, so these amounts being revenue in nature are covered in favour of assessee by the decision of Hon'ble Supreme Court in the case of India Cements Ltd. 8.2 On the other hand, the learned Departmental Representative opposed the submissions of the learned counsel for the assessee and advanced his arguments that the Department has raised two-fold arguments that the assessee has raised additional ground for the first time and the CIT(A) should have admitte....
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....t for Ambaliyara, stamp papers, other charges for purchase of land at Pondicherry, and stamp duty for land at Ambaliyara have been shown at Annex. 6 at p. 273 of the paper book. The learned counsel for the assessee submitted that all these charges/fees are eligible deduction under s. 37(1) of the Act. The learned counsel for the assessee submitted that CIT(A) has called for report from AO on additional ground regarding deduction of interest. All these details have been shown at pp. 228 to 231 of the paper book. It would be seen that all these details are regarding new business and as such the said payments are not supported by any evidence. On the contrary, as mentioned earlier, the payment is pertaining to expansion of existing business and as such the same is eligible for deduction. The principle laid down by Hon'ble Gujarat High Court the in CIT vs. Alembic Glass Industries Ltd. and Bansidhar (P) Ltd. vs. CIT (1981) 20 CTR (Guj) 90 : (1981) 127 ITR 65 (Guj) that where there is same management, same company, it is always in case of expansion and hence it is for the purpose of existing business and not for new business. Therefore, the deduction is eligible under s. 36(1) or 37....
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....s directed accordingly. 9. Ground Nos. 9 and 10 are in regard to confirmation of action of AO in not properly calculating deduction under s. 80-IA of the Act. On verification of P&L a/c, the AO found that the profit of the Motibhoyan unit includes income under the head 'Other income' amounting to Rs. 6,86,96,685 and, therefore, he observed that deduction under s. 80-IA is only admissible on the profit derived from the industrial undertaking. By relying upon the decision of Hon'ble Supreme Court in the case of Sterling Foods vs. CIT (1991) 95 CTR (Kar) 36 : (1991) 190 ITR 275 (Kar), wherein it has been held that the import of word "derived" is much smaller than the phrase "attributable to", as also the case of Madras High Court in the case of CIT vs. Pandian Chemicals Ltd. (1998) 147 CTR (Mad) 5 : (1998) 233 ITR 497 (Mad), wherein it has been held that "a mere connection between an income and an industrial undertaking would not be sufficient", the AO has observed that the other income amounting to Rs. 6,86,96,685 from Motibhoyan unit is not eligible for deduction under s. 80-I, as the same is not derived from the industrial undertaking and accordingly recalculated the....
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....sessee is not acceptable since it has been held by many Benches of the Tribunal that 90 per cent interest is to be excluded from the income from business or profession for computation of deduction under s. 80HHC. The CIT(A) did not accept the contentions of the assessee. 10.1 After considering the rival submissions and going through the material on record, we are not inclined to interfere with the findings of CIT(A) who has observed as under: "After carefully considering the observation of the AO as well as the submissions by the appellant along with the judicial decisions, I am of the view that the computation made by the AO under s. 80HHC is in order and the stand of the appellant is not acceptable, since it has been held by many benches of the Tribunal that 90 per cent of the interest is to be excluded from the income from business or profession for computation of deduction under s. 80HHC. Further, the contention of the appellant regarding benefit of netting off cannot be accepted, in view of the decision of the Madras High Court in the case of K.S. Subbiah Pillai & Co. (India) (P) Ltd. vs. CIT (2003) 179 CTR (Mad) 522 : (2004) 134 Taxman 735 (Mad), wherein it has be....
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..... 4 and 5 of the paper book, copy of the return filed for assessment year in question has been placed. As per page No. 5, the assessee has clearly offered the interest on share application money of Rs. 1,71,30,212 as income from other sources. At p. 34 of the paper book which is part of tax audit report, wherein it has been stated in reply to question No. 13D that Rs.1,71,30,212 was interest on F.D. created out of share application money. As per p. 6 of the compilation No. 2 which is reply dt. 11th March, 2003, to query by AO in course of assessment proceedings whereby break-up of interest received on F.D. created out of share application money was given to AO. Thus, assessee has made out a case that all relevant material was on record and, therefore, in view of various decisions, the additional ground may be admitted. Regarding legal position, we find that r. 11 of the Income-tax (Appellate Tribunal) Rules, 1963, is relevant on the issue, which reads as under: "Rule 11: The appellant shall not except by leave of the Tribunal, urge or be heard in support of any ground not set forth in the memorandum of appeal, but the Tribunal in deciding the appeal, shall not be confirmed....
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....#39;ble Madras High Court in CWT vs. S.S. Sankaralingam (2001) 167 CTR (Mad) 137 : (2000) 245 ITR 640 (Mad) has decided a similar issue wherein claim was not made before ITO and AAC. The question was raised for the first time before the Tribunal wherein it was held that Tribunal had jurisdiction to entertain claim for exemption under s. 5(1)(xxxi) made by assessee for the first time before it and decide such issue. In view of above discussion, we are of the view that additional ground may be admitted. We direct accordingly. 12.2 On merit, the stand of assessee was that keeping the share money in F.D. in bank pending allocation is statutory requirement and has to be complied. The assessee relied on the decisions of the Tribunal in the cases of Neha Proteins Ltd. vs. Asstt. CIT (2004) 83 TTJ (Jd) 236 and J.M. Shares & Stock Brokers Ltd. vs. Dy. CIT (2004) 83 TTJ (Mumbai) 1052, wherein on identical facts the Tribunal has held that such interest should have been reduced from share issue expenses and cannot be treated as income from other sources. It was pointed out that the decision of Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. vs. CIT has....
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.... customs duty. In rebuttal, the stand of assessee is that the assessee has included the value of customs duty as provided under s. 145A in the value of closing stock. But in the additional ground raised, the assessee wants relief on account of applicability of s. 43B. In the facts and circumstances of the case, we are of the considered opinion that in view of the decision in Berger Paints, the entire amount of excise duty/customs duty paid by the assessee in particular accounting year is allowable under s. 43B of the Act as deduction in respect of that year, irrespective of the amount of excise duty/customs duty included in value of assessee's closing stock at the end of accounting year as related thereto. So, in the interest of Justice, we restore this issue to the file of AO for deciding the same as per law available at relevant point of time on the issue relevant to the assessment year under consideration after providing reasonable opportunity of hearing to the assessee. ITA No. 1685/Ahd/2004 for asst. yr. 2000-01 (Revenue's appeal): 13. The Revenue has raised the following grounds in its appeal: 1. The learned CIT(A) has erred in law and on facts in delet....
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....50 TTJ (Del) 271 (sic) (iii) Sona Steering Systems Ltd. vs. Dy. CIT (2003) 78 TTJ (Del) 213 So, according to the learned counsel for the assessee, there is no need to interfere. 13.2 We have considered the rival submissions and gone through the material on record. We find that in CIT vs. East India Hotel Ltd. (2001) 171 CTR (Cal) 614 : (2001) 252 ITR 860 (Cal), issue of debenture expenses was involved and the loan was repayable within eleven years of allotment of debenture. The expenditure was held to be revenue in nature. The Board has clarified that provisions of amortization are not intended to supersede any other provisions of IT Act under which it is admissible as deduction or deduction allowable by virtue of the decision of Hon'ble Supreme Court in India Cement Ltd.. In view of this discussion, we are not inclined to interfere with the findings of CIT(A) and the same are upheld. 14. The second ground of Revenue's appeal is regarding deletion of addition of Rs. 14,00,000 made in respect of stamp duty for term loan and professional fees for term loan. The learned Departmental Representative submitted that as submitted in ground No. 1 above, the debentu....
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.... India Cement. The finding of CIT(A) on the issue is also upheld. 16. The fourth ground of the Revenue's appeal is regarding deletion of disallowance of interest expenses to the extent of Rs. 14,48,879 being 2 per cent of interest income charged less by the assessee. The learned Departmental Representative supported the findings of AO in the assessment order on this issue. On the other hand, the learned counsel for the assessee asserted that the assessee has rightly recovered the interest @ 16 per cent from Babubhai Patel & Co., as against the interest charged by AO @ 18 per cent. The AO is not justified in charging 2 per cent interest more. The CIT(A) has discussed this issue vide para 7 of his appellate order, relevant portion of which is as under: "7. The sixth ground of appeal relates to disallowance of Rs. 1,17,97,468 out of interest expenses. The interest expenses of Rs. 1,17,97,468 consist of two parts, first, interest charged from Babubhai Patel & Co. on advance on running account of Babubhai Patel & Co. The AO has computed interest on running account of this party at Rs. 85,95,268 which includes an amount of Rs. 1,37,897 being interest due on short-term dep....