2022 (10) TMI 1141 - AT - Income Tax

Nature of expenses - lease right payment - Revenue or capital expenditure - HELD THAT - CIT(A) clearly shows that the ld. CIT(A) has recorded the facts that the lease was only for a period of eight months and further renewal of 11 months subject to satisfactory performance. It is noticed that the ld. CIT(A) has taken on record that the lease was for the period from 20.07.2007 to 31.03.2008 and further renewal of 11 months subject to satisfactory performance and that the lease was cancelled on 09.08.2011 and the assessee was in Writ before the Hon ble Jurisdictional High Court. This being so, we are of the view that the CIT(A) is right in holding that the lease right payment does not give any enduring benefit to the assessee and it is a revenue expenditure. Addition representing the crushing activity which the assessee has not offered in its return - HELD THAT - A perusal of the order of the ld. CIT(A) clearly shows that he has called for the said seized document i.e. BMD-10 and the same was not produced and in the remand report the AO had categorically admitted that the seized document was not available. This being so, in absence of corroborating evidence being the seized material, we are of the view that the ld. CIT(A) was right in deleting the addition made by the AO in respect of crushing activity. Disallowance of 10% of the export expenses less custom duty - HELD THAT - A perusal of the order of the ld. CIT(A), it is noticed that the ld. CIT(A) when disallowing 10% out of the administrative and other expenses, has directed to reduce the director s remuneration. In fact, this is a right method insofar as the director s remuneration has already been taxed in the hands of the directors. So further taxing the same in the hands of the assessee would actually be a miscarriage of justice. Further in the interest of justice, we are of the view that the disallowance at 10% as made by the ld. CIT(A) is excessive and the same is reduced to 5%. Export expenses - HELD THAT - We are of the view that the ld. CIT(A) is right in directing the exclusion of the export duty insofar as the same is a payment made to the Government. However, it is noticed that the ld.CIT(A) has directed for disallowance of 10% out of export expenses and in the interest of justice the same is also reduced to 5%. Assessee appeal is partly allowed.

Summary

Issues Involved:
1. Validity of the assessment order under Sections 143(3), 153A, and 144 of the Income Tax Act, 1961.
2. Disallowance of administrative and export expenses.
3. Classification of lease right payments as capital or revenue expenditure.
4. Income from crushing activity.
5. Acceptance of figures in the audit report over those in the assessment order.
6. Admission of additional evidence under Rule 46A of the IT Rules.

Issue-wise Detailed Analysis:

1. Validity of the Assessment Order:
The assessee raised multiple grounds challenging the validity of the assessment order, including lack of authorization under Section 132, absence of prior approval under Section 153D, denial of cross-examination opportunities, non-provision of seized materials, simultaneous assessment under Sections 143(3) and 144, and non-service of notice under Section 153A(1)(a). However, during the hearing, the assessee did not press these grounds, leading to their dismissal.

2. Disallowance of Administrative and Export Expenses:
The CIT(A) disallowed 10% of administrative expenses (excluding Directors' remuneration) and export expenses (excluding customs duty) on an estimation basis. The Tribunal found this disallowance excessive and reduced it to 5%, noting that the Directors' remuneration and customs duty should not be included in the disallowance calculation as they are already taxed or paid to the government.

3. Classification of Lease Right Payments:
The revenue contended that lease right payments to Paradeep Port should be treated as capital expenditure due to the long-term benefit. However, the CIT(A) and Tribunal held that the lease, being for a short period (eight months), did not confer enduring benefits and should be classified as revenue expenditure.

4. Income from Crushing Activity:
The revenue argued that the assessee failed to substantiate the income from crushing activity based on seized documents (BMD-10). The CIT(A) deleted the addition as the seized document was not available during assessment or remand proceedings. The Tribunal upheld this deletion due to the lack of corroborating evidence.

5. Acceptance of Figures in the Audit Report:
The CIT(A) directed the computation of income based on the audit report figures, which were reconciled with figures from the Custom House and Commercial Tax Authorities. The Tribunal supported this, noting that the AO's remand report did not object to the audit report figures and found them substantially correct.

6. Admission of Additional Evidence:
The Tribunal addressed the issue of admitting additional evidence under Rule 46A, noting that the AO did not object to the audit report during the remand process. The Tribunal concluded that the CIT(A) rightly admitted the audit report and directed its consideration over the assessment order figures.

Conclusion:
The Tribunal partly allowed the assessee's appeals by reducing the disallowance percentages for administrative and export expenses from 10% to 5%. The revenue's appeals were dismissed, upholding the CIT(A)'s decisions on lease right payments, income from crushing activity, and acceptance of audit report figures. The Tribunal emphasized the importance of corroborating evidence and proper reconciliation of figures in audit reports.