2015 (3) TMI 570 - AT - Income Tax

Addition on account of interest expenses - CIT(A) deleted addition - Held that - AO in the order has noted that Assessee was asked to furnish the cash flow statement and Ld. DR before us has also submitted that cash flow statement was not submitted by the assessee. Before us though Ld. AR has submitted that the cash flow statement was submitted but she could not point out the same from the paper book. We further find that CIT(A) while deleting the addition has passed on the burden of proving the nexus between the interest bearing funds and availability of interest free advances on the AO. We are of the view that AO can only prove the nexus provided the required information is made available to him. As seen in the present case, no material has been placed on record to demonstrate that the cash flow was submitted to the AO. Before us it was also submitted that the loans obtained from Bank was in the nature of pledge and therefore the funds could not have been diverted. We however find that Assessee has not placed the sanction letter of the bank from which the terms and conditions of the bank loan received by the assessee could be ascertained. In such a situation, we are of the view that the issue needs re-examination at the end of AO. We therefore remit the issue to the file of AO to re-examine the issue afresh - Decided in favour of revenue for staitiscal purposes. Addition on account of stamp duty for pledge agreement and processing fees charged by bank CIT(A) deleted addition - Held that - CIT(A) while deleting the addition has noted that the expenses incurred towards pledge agreement with the bank was for borrowing working capital availed from bank and by incurring the expenditure no capital asset has come into existence. Before us no material has been placed on record by the Revenue to controvert the findings of CIT(A) and thus this ground of Revenue is dismissed. - Decided against revenue. Disallowance on account of repairs etc. - Held that - CIT(A) deleted addition - Held that - CIT(A) while deleting the addition has noted that simply on the basis of quantum of expenditure vis- -vis the WDV of assets, the expenditure cannot be treated as capital expenses. He has further given a finding that the entire work of repairs and renovation was given on contract and therefore the addition at 40% towards labour charge payments was also unwarranted. Before us no material has been placed on record by the Revenue to controvert the findings of CIT(A) and thus this ground of Revenue is dismissed. - Decided against revenue. Addition on account of machinery reconditioning charges - CIT(A) deleted addition - Held that - CIT(A) while deleting the addition has noted that for treating the expenses to be capital in nature, A.O merely relied on the fact that the expenditure incurred by the assessee was substantial as compared to the WDV of the assets. Ld. CIT(A) further held that the amount of expenditure alone does not alter the character of the expenditure. Before us no material has been placed on record by the Revenue to controvert the findings of CIT(A) - Decided against revenue. Disallowance of expenses u/s. 40(a)(ia) - CIT(A) deleted addition - payment to Soham Logistics Pvt Ltd comprises of payment towards Inland Transportation Charges, Ocean Freight, Terminal Handling Charges and Fees for Services rendered - Held that - With respect to Inland transportation charges, we find that it is Assessee s submission that Soham Logistic Pvt. Ltd., to whom the payments have been made has in turn have made the payment to the transporters and thus it is in the form of reimbursement and there is no mark up. On the other hand, we find that the A.O while disallowing the payment has noted that Soham Logistic Pvt. Ltd. has not given details of the payment received from the Assessee on which it has made the TDS and the same remained unverifiable. We further find that there are no details in support of the A.R s contention that there is no mark up on Inland transportation charges and the payments made the assessee are in the form of mere reimbursements. We further find that there is no finding of CIT(A) about payments made the Assessee to be in the nature of reimbursement. We therefore feel that the issue needs to be re-examined at the end of A.O. We therefore remit the issue to the file of A.O to decide the issue afresh. With respect to Ocean freight provision of section 194C & 195 of deduction of TDS to the agents would not apply only when the agent is a shipping agent of non-resident ship-owner or charterer and not otherwise. In the present case, in view of no material on record to demonstrate that Soham Logistic Pvt Ltd was agent of non-resident shipowners, we find that A.O was justified in disallowing the expenditure on Ocean freight u/s. 40(a)(ia) of the Act. With respect to payment to Terminal handling charges it is Assessee s submission that it has deducted the TDS but on the contrary it is A.O s observation that TDS was deducted only of ₹ 91,789/-, and no evidence of deduction of TDS on other payments was furnished before A.O. We also find that CIT(A) has also not given a categorical finding about the deduction of TDS by Assessee on the other payments of Terminal Handling charges. In view of these facts, we are of the view that the matter needs to be reexamined at the end of A.O. We therefore set aside the ground with respect to the disallowance of Terminal handling charges to the file of A.O to verify the contention of the Assessee and thereafter decided the issue in accordance with law and after giving a reasonable opportunity of hearing to the Assessee. With respect to deduction of TDS on the fees for services rendered, it is assessee s contention that the TDS has been deducted but on the other hand it is Revenue s contention that on all the bills TDS has not been deducted and it is not the case of short deduction but the case is of no deduction of TDS. Before us no details of such expenses have been placed on record by both the parties so as to justify thier respective stands. We therefore feel that this issue of payment of TDS on account of services rendered also needs to be re-examined. We therefore set aside this portion of ground to the A.O to decide the issue in accordance with law and after giving a reasonable opportunity to the Assessee. The Assessee is also directed to furnish to all the necessary details called for by the A.O. - Decided partly in favour of revenue for statistical purposes Disallowance of seed purchases expenses - CIT(A) deleted addition - Held that - Before us it is Assessee s contention that the prices paid to the sister concerns were comparable to the price paid to outsiders and no undue advantage has been passed on to the sister concerns. CIT(A) while deleting the addition has given a finding that the transaction of purchase could not have been with an idea to avoid payment of taxes. Before us Revenue has not placed any material on record to controvert the submissions of the Assessee or the findings of CIT(A). In view of these facts, we find no reason to interfere with the order of CIT(A) and thus this ground of Revenue is dismissed. - Decided against revenue. Addition of milling expenses - CIT(A) deleted addition - Assessee has debited milling expenses of ₹ 13 lacs which was paid to Jyotindra Industries, a person specified u/s. 40(a)(2b) of the Act - Held that - A.O while disallowing the expenses has noted that no evidence like challans for sending and receiving the goods have been submitted by the assessee. Before us also no material has been placed on record by the Assessee in the form of challans, transportation receipts bills etc to demonstrate that there was movements of goods between the premises of Assessee and Jyotindra Industries. From the copy of the audit report for year ending 31st March, 2009 of Jyotindra Industries placed at page 128 of the paper book, it is seen that Assessee is located at Sri Sarvodya Industries Compound, Disha Road Palanpur, Gujarat whereas the address of the Assessee is Jyotindra Group Compound 4 km. Ahmedabad Highway S.H. 41 Palanpur and therefore during the course of hearing, the ld. A.R. was asked to as to whether the Assessee and Jyotindra Industries are located in the same compound to which no satisfactory reply was given by ld. A.R. Further the exceptional reasons which necessitated the payment has also not been placed before us. We further find that CIT(A) has also not given any finding on the issues raised by A.O. In view of the these facts, we are of the view that A.O was fully justified in making the disallowance, we therefore uphold the action of A.O. - Decided in favour of revenue. Disallowance out of Terminal handling charges - non deduction of TDS - Held that - A.O while disallowing the expenditure has noted that Assessee did not furnish any details in support of its claim of deduction of TDS. We further find that CIT(A) has also noted that before him , the A.R of the Assessee have expressed his inability to furnish the necessary details or evidence. Before us also no details of the same has been furnished by the Assessee. We further find that the ratio of the decision relied upon by ld. A.R. are not applicable to the present case as in that case, it was not a case of non deduction of tax, was a different case of difference in rate of deduction of TDS (i.e. whether TDS to be deducted u/s 194C or 194I of the Act). In view of the aforesaid facts, we therefore find no reason to interfere with the order of CIT(A) - Decided against assessee. Disallowance of depreciation on BMW car treating it as a commercial vehicle - CIT(A) deleted addition - Held that - It is an undisputed fact that Assessee had purchased a BMW car and has claimed depreciation @ 50% considering it to be commercial vehicle. The definition of commercial vehicle has been given in Note 6 of the Appendix 1 which defines commercial vehicle as heavy goods vehicle , heavy passenger motor vehicle , light motor vehicle , medium goods vehicles , & medium passenger motor vehicle but does not include maxicab , motor cab , tractor , & road rollers . The definition of various types of vehicles specified herein above shall have the meanings respectively as assigned to them in S. 2 of Motor Vehicles Act, 1988. As per the definition of Motor Vehicle Act, heavy goods vehicle & heavy passenger motor vehicle among other things stipulates that a heavy vehicle would be one with the unladen weight which exceeds 12000 kg & the light motor vehicle vehicle s apart from other things in the Act would be one whose weight does not exceed 7500 kgs. Before us no copy of the Registration certificate issued by Motor Vehicle Authorities has been placed on record to demonstrate as to the nature of the vehicle i.e. whether the vehicle is heavy motor vehicle or light motor vehicle being considered by them. Further there is no finding by the A.O or CIT(A) that it has been used for the purpose of business nor any material has been placed by the Assessee to demonstrate its use for the purpose of business. In view of the aforesaid facts, we are of the view that the matter needs reexamination at the end of AO. We therefore set aside the issue to the file of AO to decide the issue afresh in accordance with law and after giving a reasonable opportunity of hearing to Assessee - Decided in favour of revenue for statistical purposes. Deduction u/s 80IB disallowed - Held that - While computing he deduction under 80IB, A.O has reduced the loss for A.Y. 08-09 and on the recalculated figure granted deduction and the action of A.O was upheld by CIT(A) by following the decision of Special Bench in the case of Goldmines Shares Pvt. Ltd. 2008 (4) TMI 405 - ITAT AHMEDABAD - As relying on Deloitte Consulting India P. Ltd vs. DCIT 2014 (1) TMI 438 - ITAT HYDERABAD and Honda Siel Power Products Ltd vs. CIT 2007 (11) TMI 8 - Supreme Court of India wherein held that a decision of Special Bench of the Tribunal on a particular issue is binding unless contrary decision of higher court is brought to its notice. - Decided against assessee.

Summary

Issues Involved:
1. Deletion of addition on account of interest expenses.
2. Deletion of addition on account of stamp duty for pledge agreement and processing fees charged by the bank.
3. Deletion of addition on account of repairs, renovation, building road, labor charges, and maintenance expenses.
4. Deletion of addition on account of machinery reconditioning charges.
5. Deletion of addition on account of disallowance of expenses under Section 40(a)(ia) of the Act.
6. Deletion of addition on account of seed purchases expenses under Section 40A(2)(b).
7. Deletion of addition on account of milling charges expenses.
8. Disallowance of depreciation on BMW car treating it as a commercial vehicle.
9. Disallowance of deduction under Section 80IB by holding that the loss of earlier year ought to have been reduced.

Detailed Analysis:

1. Deletion of Addition on Account of Interest Expenses:
The AO disallowed Rs. 25,56,814/- of interest expenses, suspecting diversion of funds to sister concerns. The CIT(A) deleted the addition, noting that the interest paid to Dena Bank was against the security of goods and there was no diversion of funds. The Tribunal remitted the issue back to the AO for re-examination, emphasizing the need for the assessee to provide the cash flow statement and other relevant documents.

2. Deletion of Addition on Account of Stamp Duty for Pledge Agreement and Processing Fees Charged by the Bank:
The AO treated Rs. 2,60,700/- as capital expenditure. The CIT(A) deleted the addition, stating that the expenses were incurred for borrowing working capital and did not result in any capital asset. The Tribunal upheld the CIT(A)'s decision, finding no material to contradict it.

3. Deletion of Addition on Account of Repairs, Renovation, Building Road, Labor Charges, and Maintenance Expenses:
The AO treated Rs. 15,04,328/- as capital expenditure. The CIT(A) deleted the addition, noting that the expenses were for repairs and renovation, not capital in nature. The Tribunal upheld the CIT(A)'s decision, finding no evidence to contradict it.

4. Deletion of Addition on Account of Machinery Reconditioning Charges:
The AO disallowed Rs. 9,64,104/- as capital expenditure. The CIT(A) deleted the addition, noting that the expenses were for reconditioning and repairs, not resulting in a new asset. The Tribunal upheld the CIT(A)'s decision, finding no evidence to contradict it.

5. Deletion of Addition on Account of Disallowance of Expenses under Section 40(a)(ia) of the Act:
The AO disallowed Rs. 80,42,054/- for non-deduction of TDS on certain payments. The CIT(A) partly upheld and partly remitted the issue for verification. The Tribunal remitted the issues related to Inland Transportation Charges, Terminal Handling Charges, and Fees for Services Rendered back to the AO for re-examination, while upholding the disallowance on Ocean Freight.

6. Deletion of Addition on Account of Seed Purchases Expenses under Section 40A(2)(b):
The AO disallowed Rs. 63,51,462/- for purchasing seeds at higher rates from sister concerns. The CIT(A) deleted the addition, noting that the transactions were at arm's length and there was no intent to avoid taxes. The Tribunal upheld the CIT(A)'s decision.

7. Deletion of Addition on Account of Milling Charges Expenses:
The AO disallowed Rs. 13,00,000/- for lack of evidence supporting the milling charges. The CIT(A) deleted the addition, noting that the payments were genuine business expenses. The Tribunal upheld the AO's disallowance, citing lack of evidence.

8. Disallowance of Depreciation on BMW Car Treating it as a Commercial Vehicle:
The AO allowed depreciation at the normal rate, not considering the BMW car as a commercial vehicle. The CIT(A) allowed 50% depreciation, treating it as a commercial vehicle. The Tribunal remitted the issue back to the AO for re-examination, emphasizing the need for evidence regarding the vehicle's use for business purposes.

9. Disallowance of Deduction under Section 80IB by Holding that the Loss of Earlier Year Ought to Have Been Reduced:
The AO recalculated the deduction under Section 80IB after adjusting the loss of the previous year. The CIT(A) upheld the AO's decision, relying on the Special Bench decision in ACIT vs. Goldmines Shares & Finance Pvt. Ltd. The Tribunal upheld the CIT(A)'s decision, finding no contrary binding decision.

Conclusion:
The Tribunal's comprehensive analysis led to the remittance of several issues back to the AO for re-examination, while upholding the CIT(A)'s decisions on others. The Tribunal emphasized the need for proper documentation and evidence to support the claims made by the assessee.