2017 (5) TMI 1207 - AT - Income Tax

Addition on account of medical expenses - Held that - On perusal of the records, we observe that the assessee had produced audited books of account before the authorities below and the AO has utterly failed to specify any defect either in the books of accounts or the relevant bills/vouchers of medical expenses placed before him. The learned CIT(A), therefore, has rightly deleted this addition after considering reasonableness of such medical expenditure in the backdrop of total medical expenditure claimed, i.e., 16,60,682/- against total turnover of ₹ 62.17 crores. We, therefore, are not inclined to interfere with the conclusion reached by the ld. CIT(A) on this count while deleting the disallowance made by the AO only on adhoc basis, as adhoc additions are not permissible under the IT Act. - Decided against revenue Addition on account of workman compensation - Held that - A perusal of the record shows that compensation of ₹ 7,50,000/- was paid by assessee through cheques and remaining amount of ₹ 1,00,000/- in cash on 08.07.2010 as is evident from the copy of ledger account placed in the paper book. A perusal of computation of income of assessee, we further find that the amount of ₹ 1,00,000/- paid in cash already stood disallowed by the assessee itself in its computation of income u/s. 40A(3) of the Act. Therefore, in our considered opinion, the disallowance of this amount of compensation, as made by the AO, would amount to double addition not permissible in the facts and circumstances of the case - Decided against revenue Disallowance of excess interest paid on unsecured loans - Held that - Assessee stands supported by several documentary evidences such as copy of ITR, computation of income and relevant bank statement of the directors Sh. Anand Prakash and Sh. Ravi Prakash, Confirmatory certificate issued by M/s. Dynamic Weaving Pvt. Ltd., the original lender, copy of account of both the directors in the books of M/s. Dynamic Weaving Pvt., Ltd. along with its PAN and ITR, comparative chart of interest paid to directors @ 20% for A.Yrs. 2011-12 to 2013-13 toward reimbursement of interest on loan raised by them from M/s. Dynamic Weaving Pvt. Ltd. and so on. Moreover, the Department itself has accepted the claim of interest paid @ 20% to the same directors in A.Y. 2012-13 and 2013-14 as is evident from the respective assessment orders of the assessee company. The ld. DR utterly failed to repudiate the contention of the assessee that the interest @ 20% amounting to ₹ 10,00,000/- each was paid to its directors in 2012-13 as the loan was repaid by the assessee on 01.10.2012 the directors in turn repaid the same to M/s. Dynamic Weaving Pvt. Ltd. on 04.10.2012. In view of this applying the rule of consistency, the authorities below should have allowed the claim of assessee - Decided against revenue Addition on account of difference in sundry creditors and difference in purchases - Held that - CIT(A) has not recorded any finding that the reconciliation statements furnished by the assessee regarding the impugned differences, were found verifiable from the books of accounts of assessee and that of sundry creditors as well as the sellers. It is no doubt true that the assessee had submitted reconciliation statements before the AO and the AO did not make thorough enquiry with reference to the books of account of the assessee as well as the books of sundry creditors and sellers, so as to verify the same before rejecting the explanation of the assessee. The crucial fact to be ascertained for adjudication of this issue is that the amounts claimed by the assessee should be cross-tallied with the accounts of sundry creditors and the sellers of goods. We, therefore think is appropriate to remit both these issues back to the file of Assessing Officer to properly examine the reconciliation statement filed by the assessee with reference to party-wise explanation furnished before the first appellate authority, as reproduced in the impugned order. - Decided in favour of revenue for statistical purposes. Addition on account of bogus purchases u/s. 69C - Held that - As borne out on record that the AO has not doubted the genuineness of sales; that the assessee is a manufacturing company and consumption of raw material is an essential ingredients of finished products sale. A perusal of impugned order will reveal that the ld. CIT(A) has also tested the conclusions of the AO on the anvil of trading account declared by the assessee giving profit rate of 18.79%. He has also observed that the assessee during the year under consideration has declared sales at ₹ 62,17,48,614/- against cost of raw material consumed of ₹ 27,89,56,500/- and manufacturing expenses of ₹ 23,84,34,176/-, which after considering the other income of ₹ 9,88,021/- declared by assessee, gives gross profit of ₹ 11,47,41,082/- representing to 18.79% with increase in stock of ₹ 1,43,95,123/-. We, therefore, find substance in the observations of the ld. CIT(A) that if the purchases made from said supplier company worth ₹ 20,42,24,661/- are deducted from the cost of raw material consumed, it will given GP of 50.8% which is not at all feasible in the trade of assessee. It is also not the case of Revenue that the ratio of raw material consumed to sale by the assessee during the year does not commensurate to such ratio declared by the assessee in preceding assessment years, rather it stands parallel to the material consumed in preceding years. Not only this, the trading results of the assessee company was also found parallel to other paper mills during the year under consideration as examined by the ld. CIT(A) in the impugned order, against which there is nothing from the side of Revenue. The Revenue has utterly failed to rebut the reasonable analysis made by the ld. CIT(A) while accepting the impugned purchases as genuine. - Decided against revenue Addition on a/c of unexplained cash credit u/s. 68 - Held that - We do not find any material available on record to counter the findings reached by the ld. CIT(A) on this issue. The ld. DR failed to controvert the reasonings recorded by the ld. CIT(A) based on books of accounts of both the assessee company and the supplier company. Therefore, the deletion of addition u/s. 68 also deserves to be sustained. - Decided against revenue Addition on account of insurance claim - Held that - It is no doubt true that the assessee has made this claim by making an entry under the wrong nomenclature as excess claim written off , but in our opinion, nomenclature of an entry would not change the actual characteristics of the actual claim made by the assessee. In fact, the authorities below were required first to ascertain as to how much stock was available with the appellant on the date of fire accident, what was the insurance cover with respect to loss of stock, what was the actual loss of stock in fire and under what circumstances, the part of the loss claimed by assessee was accepted in the subsequent assessment year 2012-13. No exercise appears to have been made by the authorities below first to ascertain these facts with reference to the books of accounts & evidences furnished by assessee or by way of other inquires from the respective competent authorities before deciding the claim of the assessee. Besides, for want of any explanation by assessee, we fail to understand as to why and how the assessee has written off partial claim of insurance amounting to ₹ 1 crore in the year under consideration before final settlement of such claim by the Insurance company which was allowed at ₹ 3,40,388/- in the subsequent year 2012-13 on 02.03.2012. Thus we think it expedient in the interest of justice to restore this issue to the file of the AO to make thorough examination/enquiries in the matter

Summary

Issues Involved:

1. Deletion of additions under 'medical expenses' and 'workman compensation'.
2. Restriction of addition for excess interest paid to lenders.
3. Deletion of addition for differences in sundry creditors.
4. Deletion of addition for differences in purchases.
5. Deletion of addition for bogus purchases.
6. Deletion of addition for unexplained cash credit.
7. Disallowance of insurance claim written off.

Detailed Analysis:

1. Deletion of Additions under 'Medical Expenses' and 'Workman Compensation':

The Revenue challenged the deletion of ?1,00,000 each under the heads 'medical expenses' and 'workman compensation'. The Tribunal found that the AO failed to specify any defect in the books of accounts or relevant bills/vouchers of medical expenses. The CIT(A) rightly deleted the addition, considering the reasonableness of such medical expenditure against the total turnover of ?62.17 crores. For workman compensation, the Tribunal noted that the amount paid in cash already stood disallowed by the assessee itself under section 40A(3) of the Act, preventing double addition. Thus, the deletion by CIT(A) was upheld.

2. Restriction of Addition for Excess Interest Paid to Lenders:

The Revenue contested the CIT(A)'s restriction of disallowance of excess interest from ?14,18,666 to ?8,10,666. The assessee argued that the interest paid at 20% was commercially expedient as the directors borrowed funds at the same rate from M/s Dynamic Weaving Pvt. Ltd. The Tribunal found that the CIT(A)'s restriction was based on assumptions without cogent material. The Tribunal upheld the assessee's claim, noting that the Revenue accepted the same interest rate in subsequent years, applying the rule of consistency.

3. Deletion of Addition for Differences in Sundry Creditors:

The AO added ?17,15,837 due to discrepancies between the amounts shown by the assessee and confirmations from sundry creditors. The CIT(A) accepted the assessee's reconciliation statement, observing that payments were made through banking channels. The Tribunal remitted the issue back to the AO to verify the reconciliation statements with the books of accounts of both parties, directing a fresh decision after proper examination.

4. Deletion of Addition for Differences in Purchases:

Similarly, the AO added ?34,95,471 due to discrepancies in purchase amounts. The CIT(A) accepted the reconciliation statement provided by the assessee. The Tribunal remitted the issue back to the AO for verification of the reconciliation statements with the books of accounts, directing a fresh decision after proper examination.

5. Deletion of Addition for Bogus Purchases:

The AO treated purchases of ?20,42,24,661 from M/s Prakash Marketing Pvt. Ltd. as bogus, citing discrepancies and lack of evidence. The CIT(A) deleted the addition, noting that the assessee provided ample evidence, including bank statements, sales tax returns, and confirmation from the supplier. The Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee's trading results and ratios were consistent and comparable with industry standards, and the purchases were genuine.

6. Deletion of Addition for Unexplained Cash Credit:

The AO added ?89,72,748 as unexplained cash credit. The CIT(A) deleted the addition, noting that the amount was an opening balance payable to M/s Prakash Marketing Pvt. Ltd., confirmed by both parties' books of accounts. The Tribunal upheld the CIT(A)'s decision, finding no material to counter the findings.

7. Disallowance of Insurance Claim Written Off:

The AO disallowed ?1,00,00,000 claimed by the assessee as an insurance claim written off. The CIT(A) sustained the addition, but the assessee challenged it. The Tribunal found that the authorities did not thoroughly examine the actual loss incurred in the fire. The Tribunal remitted the issue back to the AO for a thorough examination of the actual loss and insurance claim, directing a fresh decision after proper verification.

Conclusion:

The Tribunal partly allowed the appeals of both the assessee and the Revenue for statistical purposes, directing remittance of certain issues back to the AO for fresh examination and verification. The Tribunal upheld the CIT(A)'s decisions on several counts, emphasizing the need for thorough and proper verification of facts and evidence in tax assessments.