2013 (9) TMI 234 - AT - Income Tax

Disallowance of travelling expenses - Held that - It is seen that Assessing Officer had disallowed the expenses for the reason that the Assessee had not furnished the details. CIT(A) while deleting the addition has noted that the details were indeed furnished by Assessee before Assessing Officer. He further noted that the facts of the case in the year under appeal are identical to that of AY 1994-95 & 1995- 96 and following his own order for aforesaid years he deleted the addition. Before us, Revenue could not controvert the findings of CIT(A) by bringing any tangible material on record - Decided against Revenue. Disallowance of guest house expenses - Held that - It is an undisputed fact that the expenses incurred by the Assessee are towards the guest house. Hon ble Apex Court in the case of Britannia Ind. (2005 (10) TMI 30 - SUPREME Court) has concluded that expenses towards rents, repairs, maintenance and depreciation of premises/accommodation used for the purposes of guest house were to be disallowed u/s 37(4). Respectfully following the decision of Hon ble Apex Court, we are of the view that the action of Assessing Officer in disallowing the expenses cannot be faulted - Decided in favour of Revenue. Disallowance of loss on trading - Held that - It is seen that while deleting the addition, CIT(A) after considering the tax audit report has given a finding that the sale was not to a party which would attract the provisions of Section 40A(2)(a). He further noted that there is no material on record to prove that the sale was made at a price which was below the market rate. Before us, Revenue could not controvert the findings of CIT(A) by bringing any tangible material on record - Decided against Revenue. Disallowance on account of excess consumption of Hexene - Held that - It is seen that while deleting the addition, CIT(A) has held that the facts in the present ground are identical to that AY 1995-96 and he relying on his orders for AY 1994-95 and 1995-96 deleted the addition. Before us, Assessee has submitted that it has maintained complete quantity records as per Central Excise laws and no defect has been found therein. Before us, Revenue could not controvert the findings of CIT(A) or the submissions made by Assessee by bringing any tangible material on record - Decided against Revenue. Disallowance on account of excess consumption of Catalyst - Held that - It is seen that while deleting the addition, CIT(A) has held that the facts in the present ground are identical to that AY 1995-96 and he relying on his orders for AY 1994-95 and 1995-96 deleted the addition. Before us, Revenue could not controvert the findings of CIT(A) by bringing any tangible material on record - Decided against Revenue. Disallowance of depreciation - Held that - It is seen that the Assessing Officer has treated the entire transaction to be a device used to reduce the incidence of tax. However, he has not brought any-thing of record with respect to the treatment given by the Assessee to the income received on the disputed lease transactions. We, therefore, feel that the issue needs to be examined in all respect in light of the decision of CIT Vs Gujarat Gas Ltd (2008 (9) TMI 126 - GUJARAT HIGH COURT) - Decided in favour of Revenue. Deduction u/s 80HHC - Inclusion of excise duty and sales tax as part of turnover - Lease rent, interest etc as part of business income - Held that - From the assessment order it is seen that the Assessee had earned interest of Rs. 4,10,388/- from banks and Rs. 242000/- from Sangam Chemicals. It is submitted that the interest has been earned in the normal course of business and has also been taxed as business income. It is seen that while passing the order u/s 143(3) the Assessing Officer has made no adjustment to the interest income and considered it as income from business. The Ld. D.R. could not controvert the facts by bringing any contrary material on record. In the case of CIT Vs Shri Ram Honda Power Equip. & Ors (supra) while deciding the eligibility of deduction u/s 80HHC, it has been held that when interest income is treated as business income, the net interest is required to be reduced to work out the deduction u/s 80HHC - . As far as the inclusion of lease rent, interest etc is concerned we find that there is no finding by the Assessing Officer as to whether the same is business income or income from other sources. We, therefore, feel that this aspect needs to be examined by Assessing Officer in the light of the ratio of decision in the case ASG Capsules (2012 (2) TMI 101 - SUPREME COURT OF INDIA) and CIT vs Sri Ram Honda Power (2007 (1) TMI 86 - HIGH COURT, DELHI) - Decided in favour of Revenue. Rejection of books of accounts - Low yield and GP addition - Held that - CIT(A) while deleting the addition has given a finding that AO was not justified in comparing the yield of AY 97-98 with the yield of AY 1995- 96 ignoring the fact that the yield of current year was better than that in the immediately preceding year. He has further held that the Assessee has maintained proper records of production and consumption in accordance with the excise regulations. He has further noted that during the search at Assessee s premises in 1999-2000 minor difference in stock was observed which was due to various explainable factors. He has further held that AO has not brought any material on record to dispute the correctness of books of accounts and further no evidence has been brought on record to substantiate the allegation of unrecorded sales. He thus by a well reasoned order deleted the addition. Before us, nothing has been brought on record by Revenue to controvert the findings of CIT(A) - Decided against Revenue.

Summary

Issues Involved:
1. Disallowance of foreign travelling expenses.
2. Disallowance of guest house expenses.
3. Disallowance on account of loss in trading.
4. Addition on account of excess consumption of Heptene.
5. Addition on account of excess consumption of catalysts.
6. Disallowance of depreciation on assets leased back to Rajasthan State Electricity Board.
7. Disallowance of expenditure incurred on the transaction of lease back assets.
8. Deduction u/s 80HHC.
9. Low yield and GP addition.
10. Disallowance u/s 40A(2).
11. Disallowance of interest on cash balance.
12. Disallowance of interest on unconfirmed advances.
13. Deduction u/s 80IA.

Issue-wise Detailed Analysis:

1. Disallowance of Foreign Travelling Expenses:
The Assessing Officer (AO) disallowed Rs. 10,11,025/- due to lack of details. The CIT(A) deleted the addition, noting that the details were furnished and similar disallowances were deleted in earlier years (AY 1994-95 and 1995-96). The Tribunal upheld the CIT(A)'s decision as the Revenue could not provide contrary evidence.

2. Disallowance of Guest House Expenses:
The AO disallowed Rs. 1,14,319/- under Section 37(4). The CIT(A) deleted the addition, relying on Gujarat High Court decisions. However, the Tribunal reversed this, citing the Supreme Court's decision in Britannia Industries Ltd. vs. CIT, which mandated disallowance of such expenses.

3. Disallowance on Account of Loss in Trading:
The AO disallowed Rs. 2,13,322/- due to lack of proof of sales consideration and market rate details. The CIT(A) deleted the addition, noting no evidence of sale below market price and no applicability of Section 40A(2)(a). The Tribunal upheld the CIT(A)'s decision.

4. Addition on Account of Excess Consumption of Heptene:
The AO added Rs. 96,43,855/- for unexplained excess consumption. The CIT(A) deleted the addition, noting proper maintenance of records and no justification for rejecting books. The Tribunal upheld the CIT(A)'s decision as the Revenue failed to provide contrary evidence.

5. Addition on Account of Excess Consumption of Catalysts:
The AO added Rs. 86,87,381/- for unexplained excess consumption. The CIT(A) deleted the addition, citing similar reasons as for Heptene. The Tribunal upheld the CIT(A)'s decision, noting no defects in records and better gross profit rates.

6. Disallowance of Depreciation on Assets Leased Back to Rajasthan State Electricity Board:
The AO disallowed Rs. 6,30,25,680/-, considering the transaction a tax avoidance device. The CIT(A) allowed the claim, relying on the ITAT's decision in Unimed Technologies Ltd. The Tribunal set aside the issue for re-examination in light of the Gujarat High Court's decision in CIT vs. Gujarat Gas Ltd.

7. Disallowance of Expenditure Incurred on the Transaction of Lease Back Assets:
Linked to the 6th issue, the Tribunal set aside the issue for re-examination by the AO.

8. Deduction u/s 80HHC:
The AO included excise duty and sales tax in turnover and excluded lease rent, interest, and miscellaneous income from business income. The CIT(A) directed exclusion of excise duty and sales tax and inclusion of interest and lease income. The Tribunal upheld the CIT(A)'s decision on excise duty and sales tax, but directed re-examination of interest and lease income in light of Supreme Court decisions.

9. Low Yield and GP Addition:
The AO added Rs. 1,55,33,637/- for unaccounted production. The CIT(A) deleted the addition, noting proper maintenance of records and no evidence of unaccounted sales. The Tribunal upheld the CIT(A)'s decision.

10. Disallowance u/s 40A(2):
The AO disallowed Rs. 25,20,000/- as excessive remuneration to a director. The CIT(A) deleted the addition, noting approval by the Company Law Board and reliance on Delhi High Court's decision in CIT vs. Shriram Pistons & Rings Ltd. The Tribunal upheld the CIT(A)'s decision.

11. Disallowance of Interest on Cash Balance:
The AO disallowed Rs. 11,96,100/- for maintaining huge cash balance. The CIT(A) deleted the addition, noting no evidence of non-business use and availability of interest-free funds. The Tribunal upheld the CIT(A)'s decision.

12. Disallowance of Interest on Unconfirmed Advances:
The AO disallowed Rs. 25.20 lacs due to lack of evidence of business purpose. The CIT(A) directed the AO to verify the nexus between borrowed funds and advances. The Tribunal upheld the AO's disallowance, noting no subsequent construction of tanks.

13. Deduction u/s 80IA:
The AO disallowed the claim as the unit started production before 1-4-91. The CIT(A) upheld the AO's decision, noting no creation of a new unit. The Tribunal upheld the CIT(A)'s decision.

Conclusion:
The Tribunal upheld several decisions of the CIT(A) while setting aside a few issues for re-examination. The Revenue's appeals were partly allowed, and the Assessee's cross-objections were dismissed.