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2017 (4) TMI 231 - AT - Income TaxUnexplained cash credit under section 68 - treatment of advances received from the customers - Held that - There is merit in the contention of the assessee that the assessee cannot enforce its customers to furnish their permanent account numbers. However, if advances have been adjusted against the subsequent sales, it would be reasonable to accept the genuineness of the advances since they have been received from the regular customers who were not related parties of the assessee. Accordingly we direct the Assessing Officer to delete the addition, if the advances have been adjusted against the subsequent sales. For that purpose, the assessee is directed to furnish a chart showing adjustment of deposits against the subsequent sales. We notice from the orders passed for the assessment years 2006-07 and 2008- 09, the Assessing Officer has sustained a portion of advances, presumably on the reasoning that they have not been adjusted against the subsequent sales. We notice that the assessee had shown before the Dispute Resolution Panel that a sum of ₹ 10 lakhs received as advance was returned back and hence the Dispute Resolution Panel has directed the Assessing Officer to delete the same. Hence, in case the advances have not been adjusted against the subsequent sales, we are of the view that the assessee should be provided with an opportunity to explain the reasons, which shall be examined by the Assessing Officer in accordance with the law. Transfer pricing adjustment made on payment of royalty - Held that - The payment of royalty by the assessee to its associated enterprises, Dow, Netherlands at five per cent. on domestic sales and eight per cent. on export sales is liable to be considered as at an arm s length rate in view of Circular No. 5 dated July 21, 2003 (supra). Therefore, the addition made by the Assessing Officer on this count is unsustainable. Disallowance of leave encashment under section 43B - Held that - Supreme Court, in the case of Exide Industries Ltd., (2008 (9) TMI 921 - SUPREME COURT ) has stayed the decision rendered by the honourable Calcutta High Court 2007 (6) TMI 175 - CALCUTTA High Court and further held that the disallowance should be made in terms of section 43B of the Act, during the pendency of appeal, as if section 43B(f) is in the statute book. Hence the provision for leave encashment is required to be disallowed in terms of section 43B(f) of the Act, if it has not been paid on or before the due date prescribed for furnished return of income under section 139(1) of the Act. However, since the decision of the honourable Supreme Court is pending, we set aside this issue to the file of the Assessing Officer with the direction to modify the addition, if required, in accordance with the decision that shall be rendered by the honourable Supreme Court. Disallowance made under section 43B - Held that - It is settled proposition of law that the Assessing Officer is required to compute the correct total income and further deduction which is legally allowable to the assessee cannot also be denied. The honourable Bombay High Court in the case of CIT v. Pruthvi Brokers and Shareholders P. Ltd. 2012 (7) TMI 158 - BOMBAY HIGH COURT has held that the appellate authorities are entitled to consider new claim made subsequent to filing of return. Accordingly, we admit the additional claim put forth by the assessee and direct the Assessing Officer to consider the same in accordance with the provisions of section 43B of the Act. Disallowance of sample expenses - Held that - We notice that the assessee did not answer the specific queries raised by the Assessing Officer. Instead the assessee has proceeded to answer the queries under the impression that the Assessing Officer is questioning about its allowability under section 37(1) of the Act. The submissions made before the learned Commissioner of Income-tax (Appeals) shows that the assessee was under wrong impression. We notice that the Assessing Officer has also observed that the assessee has failed to produce evidences. Since the assessee did not appreciate the specific queries raised by the Assessing Officer, in our view, the assessee should be provided with an opportunity to prove the claim. Accordingly we set aside the order passed by the learned Commissioner of Income-tax (Appeals) on this issue and restore this matter to the file of the Assessing Officer for examining the same afresh. The assessee is directed to answer the specific queries raised by the Assessing Officer and also produce other information and explanations that may be called for by the Assessing Officer to substantiate the claim. Claim of set off of brought forward unabsorbed depreciation - Held that - Since this issue requires verification at the end of the Assessing Officer, we restore the same to his file with the direction to compute and allow the correct amount of brought forward unabsorbed depreciation. Disallowance of loss arising on revaluation of debtors and creditors balances on the basis of foreign exchange fluctuations - Held that - The impugned loss cannot be treated as notional/speculation loss and the same is allowable as per the decision rendered by the honourable Supreme Court in the case of CIT v. Woodward Governor India P. Ltd. 2009 (4) TMI 4 - SUPREME COURT Disallowance of bad debts claim - Held that - Departmental representative did not dispute the fact that the amount of ₹ 9.62 crores represents sales made by the assessee in the earlier years, meaning thereby, the condition prescribed under section 36(2) stands satisfied. There is also no dispute that the assessee has actually written off the debts as bad in its books of account. Hence, we are of the view that the learned Commissioner of Income-tax (Appeals) was justified in allowing the claim of the assessee by following the decision rendered by the honourable Supreme Court in the case of T. R. F. Ltd. 2010 (2) TMI 211 - SUPREME COURT Appeal of the assessee is treated as allowed and the appeal of the Revenue is dismissed.
Issues Involved:
1. Disallowance of lease rental paid to IBM. 2. Treatment of advances received from customers as unexplained cash credit under section 68. 3. Transfer pricing adjustment on payment of royalty. 4. Disallowance of leave encashment under section 43B. 5. Disallowance of outstanding bonus and excise duty liabilities under section 43B. 6. Disallowance of sample expenses. 7. Set off of brought forward unabsorbed depreciation. 8. Charging of interest under sections 234C, 234D, and non-granting of interest under section 244A. 9. Initiation of penalty proceedings under section 271(1)(c). 10. Disallowance of loss on revaluation of debtors and creditors balances due to foreign exchange fluctuations. 11. Disallowance of bad debts claim. Detailed Analysis: 1. Disallowance of Lease Rental Paid to IBM: The assessee treated the lease as a "financial lease" in its books but claimed it as an "operating lease" for tax purposes, leading to the disallowance of the principal portion of the lease rental by the Assessing Officer and the Commissioner of Income-tax (Appeals). The Tribunal, consistent with the view taken in a similar case (Dow Chemical International Pvt. Ltd.), set aside the order and directed the Assessing Officer to examine the lease agreement to determine the nature of the lease. 2. Treatment of Advances Received from Customers: The assessee received advances from customers that were adjusted against subsequent sales. The Assessing Officer disallowed advances not supported by confirmation letters. The Tribunal, agreeing with the Dispute Resolution Panel, directed the Assessing Officer to delete additions where advances were adjusted against sales and allowed the assessee to explain unadjusted advances. 3. Transfer Pricing Adjustment on Payment of Royalty: The Assessing Officer made adjustments based on lower royalty rates paid by Dow, UK to Dow, Netherlands. The Tribunal, following its earlier decision in the assessee's own case for the assessment year 2004-05, directed the deletion of the transfer pricing adjustment, recognizing the royalty rates approved by the Central Government as arm's length. 4. Disallowance of Leave Encashment under Section 43B: The Tribunal noted that the Supreme Court stayed the Calcutta High Court's decision in Exide Industries Ltd., which had held section 43B(f) as arbitrary. The Tribunal directed the Assessing Officer to disallow the provision for leave encashment as per section 43B(f) but to modify the addition based on the Supreme Court's final decision. 5. Disallowance of Outstanding Bonus and Excise Duty Liabilities under Section 43B: The assessee admitted a mistake in not disallowing these liabilities initially and filed a revised computation. The Tribunal, citing the Bombay High Court's decision in CIT v. Pruthvi Brokers and Shareholders P. Ltd., allowed the additional claim and directed the Assessing Officer to consider it under section 43B. 6. Disallowance of Sample Expenses: The Assessing Officer disallowed sample expenses due to lack of specific answers and evidence from the assessee. The Tribunal restored the matter to the Assessing Officer for fresh examination, directing the assessee to answer specific queries and provide necessary evidence. 7. Set Off of Brought Forward Unabsorbed Depreciation: The Tribunal restored this issue to the Assessing Officer for verification and computation of the correct amount of brought forward unabsorbed depreciation. 8. Charging of Interest under Sections 234C, 234D, and Non-Granting of Interest under Section 244A: The Tribunal directed the Assessing Officer to compute interest under section 234C on the returned income and to compute interest under sections 234D and 244A in accordance with the law. 9. Initiation of Penalty Proceedings under Section 271(1)(c): The Tribunal declined to adjudicate this ground as it was premature at this stage. 10. Disallowance of Loss on Revaluation of Debtors and Creditors Balances: The Tribunal upheld the Commissioner of Income-tax (Appeals)'s decision to allow the loss, as it was consistent with the Supreme Court's decision in CIT v. Woodward Governor India P. Ltd., recognizing it as allowable. 11. Disallowance of Bad Debts Claim: The Tribunal confirmed the Commissioner of Income-tax (Appeals)'s decision to allow the bad debts claim, following the Supreme Court's ruling in T. R. F. Ltd. v. CIT, as the debts were written off in the books and related to earlier sales. Conclusion: The appeals by the assessee were largely allowed, with directions for fresh examination and verification on several issues, while the Revenue's appeal was dismissed. The Tribunal emphasized adherence to legal precedents and proper examination of facts and agreements. The judgment was pronounced on September 20, 2016.
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