2012 (1) TMI 222 - AT - Income Tax

Trading addition deleted as relying on previous year of assessee Deemed dividend addition - Held that - As already held that transactions are of business in nature, therefore, provisions of section 2(22)(e) cannot be applied. In view of these facts and circumstances and in view of the decision of Tribunal in case of sister concern for the same year in which we have held that transactions are business in nature, we uphold the order of ld. CIT (A) indeletingthe addition Addition u/s 40A(3) - Held that - There is no infirmity in the finding of ld. CIT (A) as the payment to the transporter on each occasion does not exceed ₹ 20,000/-. Therefore, in our considered view, addition under section 40A(3) could not have been made. Accordingly, we confirm the findings of ld. CIT (A) Disallowance of telephone expenses - Held that - We noted that expenditure incurred under this head is exclusively for the purpose of business. The AO has not pointed out any particular expenses which are not for purposes of business. Looking to the turnover of the assessee and other details kept by assessee, we hold that ld. CIT (A) was justified in deleting the addition. Depreciation @80% on windmill allowed Addition on account of interest expenses - Held that - The ground taken by the department is wrong as ld. CIT (A) has remitted the matter back to the file of AO to work out disallowance in view of provisions of section 14A of the Act. The assessee has also challenged the finding of ld. CIT (A) by ground No. 11 and 12 in which it has been held that provisions of section14A are not applicable on the facts of the present case. Vehicle running & maintenance expense allowed Disallowance of packaging material expenses Disallowance of legal and professional expenses - Held that - On perusal of ledger account of legal and professional expenses, it is noticed that the expenditure is incurred on payment of monthly retainership charges to various consultants/professional charges paid for obtaining consultancy/court charges for appearing and arguing the matters at various levels. All the confirmations have been filed. There is no dispute about rendering of services. Therefore, we hold that there is no question of disallowing of ₹ 50,000/- on adhoc basis. Accordingly, we delete the addition. The ground of the assessee is allowed. Addition on account of unverified sundry creditors - Held that - Assessee deserves to succeed in this ground. There is no dispute about liability of the assessee which is coming from last year. This liability has not been ceased to exist

Issues Involved:

1. Deletion of trading addition of Rs. 75 lacs.
2. Deletion of addition of Rs. 10,20,73,725/- on account of deemed dividend under section 2(22)(e).
3. Disallowance under section 40A(3) of the Act.
4. Disallowance of telephone expenses.
5. Withdrawal of depreciation on Wind Mill.
6. Disallowance of interest expenses under section 14A.
7. Disallowance of vehicle running and maintenance expenses.
8. Disallowance of packaging material expenses.
9. Disallowance of other expenses.
10. Disallowance of legal and professional expenses.
11. Disallowance on account of unverified sundry creditors.

Detailed Analysis:

1. Deletion of Trading Addition of Rs. 75 Lacs:
The department's appeal contested the deletion of a Rs. 75 lacs trading addition made by the AO. The AO had pointed out discrepancies in the yield of mustard oil and mustard oil cake, lack of records for different qualities of mustard seeds, unverifiable expenses, and undervaluation of closing stock. The ld. CIT (A) deleted the addition, noting that the AO had not pointed out any defects in the books of account and that the trading results for the subsequent year were accepted by the AO. The Tribunal upheld the deletion, emphasizing consistency with earlier years where similar additions were deleted by the Tribunal.

2. Deletion of Addition of Rs. 10,20,73,725/- on Account of Deemed Dividend:
The AO added Rs. 10,20,73,725/- as deemed dividend under section 2(22)(e), arguing that the assessee received cheques from sister concerns which were not for purchases. The ld. CIT (A) deleted the addition, stating that the transactions were regular business transactions and not loans or advances. The Tribunal upheld the deletion, citing that the transactions were business in nature and not covered under section 2(22)(e), referencing similar decisions in the assessee's own case and sister concerns.

3. Disallowance under Section 40A(3) of the Act:
The AO disallowed 20% of freight charges paid in cash to M/s. Shree Krishna Freight Carrier, Bansur, amounting to Rs. 31,81,440/-. The ld. CIT (A) deleted the disallowance, observing that individual payments did not exceed Rs. 20,000/-. The Tribunal upheld this deletion, finding no infirmity in the CIT (A)'s order.

4. Disallowance of Telephone Expenses:
The AO disallowed 20% of telephone expenses, amounting to Rs. 4,67,830/-, suspecting non-business use. The ld. CIT (A) deleted the disallowance, and the Tribunal upheld this, noting that the expenditure was exclusively for business purposes and the AO had not identified any non-business expenses.

5. Withdrawal of Depreciation on Wind Mill:
The AO disallowed Rs. 20,000/- of depreciation on the windmill, segregating the cost of the foundation and rooms. The ld. CIT (A) deleted the disallowance, and the Tribunal upheld this, referencing past decisions where the entire windmill was considered for depreciation.

6. Disallowance of Interest Expenses under Section 14A:
The AO disallowed Rs. 1,06,76,964/- of interest expenses under section 14A. The ld. CIT (A) remitted the matter back to the AO to work out the disallowance. The Tribunal directed the AO to reconsider the issue afresh, following similar directions given in the case of M/s. Deepak Vegpro Pvt. Ltd.

7. Disallowance of Vehicle Running and Maintenance Expenses:
The AO disallowed 20% of vehicle expenses, amounting to Rs. 3,45,582/-. The ld. CIT (A) restricted the disallowance to 10%, and the Tribunal deleted the entire disallowance, following past decisions where similar disallowances were deleted.

8. Disallowance of Packaging Material Expenses:
The AO made an adhoc disallowance of Rs. 5,00,000/-, which the ld. CIT (A) restricted to Rs. 1,00,000/-. The Tribunal deleted the entire disallowance, following past decisions where similar disallowances were deleted.

9. Disallowance of Other Expenses:
The AO made an adhoc disallowance of Rs. 2,00,000/- out of Rs. 18,57,263/- of other expenses. The ld. CIT (A) restricted the disallowance to Rs. 1,00,000/-. The Tribunal upheld the CIT (A)'s decision to restrict the disallowance to Rs. 1,00,000/-.

10. Disallowance of Legal and Professional Expenses:
The AO disallowed Rs. 5,00,000/- out of Rs. 12,04,143/- of legal and professional expenses. The ld. CIT (A) restricted this to Rs. 50,000/-. The Tribunal deleted the entire disallowance, noting that the expenses were for professional services rendered and were fully vouched.

11. Disallowance on Account of Unverified Sundry Creditors:
The AO added Rs. 1,65,699/- under section 41(1) for unverified sundry creditors. The ld. CIT (A) upheld the addition. The Tribunal deleted the addition, noting that the liabilities had not ceased to exist and referencing case laws supporting the assessee's position.

Conclusion:
The Tribunal upheld the deletions and disallowances made by the ld. CIT (A) on various grounds, emphasizing consistency with past decisions and the nature of transactions being business-related rather than loans or advances. The Tribunal provided detailed reasoning for each issue, referencing relevant case laws and past decisions to support its conclusions.

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