2017 (7) TMI 657 - AT - Income Tax

Trading additions - Held that - Where the reasons for the decline in the G.P rate has been accepted by the AO as well as by the ld CIT(A), we do not see any justifiable reason to upheld the trading additions made by the AO on account of low G.P rate. The basis of adopting 35% G.P rate by the AO and how the same has been derived at - whether based on assessee s past history or similar line of business is not clear. Similarly, the basis of upholding the ad-hoc addition of ₹ 20,00,000 by the ld CIT(A) is equally not clear especially when the CIT(A) was satisfied with the explanation of the assessee regarding the fall in G.P rate. Given that the assessee has given a justifiable explanation with supporting numbers to corroborate its explanation for the fall in G. P rate, we delete the trading addition of ₹ 93.70 lacs as made by the AO. Disallowance on account of travelling expenses - Held that - The bills/vouchers for travelling expenses have been examined by the AO and in absence of any specific defect pointed out by the AO, the ad hoc addition of ₹ 10 lacs cannot be sustained in eye of law. The revenue s ground no. 2 is thus dismissed. Addition of foreign travel expenses - Held that - Once the adequate material evidence is on record, the observation of the AO doesn t inspire confidence at all where he says that visits of the CEO for some other projects and business purposes of some visits are not justified . Where the assessee has given adequate supportive documentation in support of the foreign travel in terms of bills and tour report containing travel dates, purpose etc, we don t see any justifiable reason to sustain the ad hoc addition on account of foreign travel expenses. It is not the case of the Revenue that some non-employees or relatives of the directors, etc visited overseas. Further, the necessity of foreign travel is a business decision which should be best left to the assessee company unless there are some substantial corroborative evidence to prove otherwise Addition of Motor car expenses - Held that - No specific discrepancy has been pointed by the AO in the bills/vouchers submitted by the assessee. It is not the position of the Revenue that the expenses claimed are bogus in nature or not incurred for the purposes of the business. The adhoc disallowance cannot therefore be sustained in eye of law. Addition u/s 68 - Held that - Once the identity and credit worthiness of the subscribers is established and genuineness of transaction is not doubted, mere non-filing of the confirmation cannot be held sufficient enough to attract the provisions of section 68 of the Act. In the peculiar facts of the present case, where the share application money has been received from the existing shareholders and the necessary particulars in terms of name, address and PAN number have been furnished to the AO, the AO could have carried out further verification/enquiry where he is not satisfied with the assessee s explanation. There is nothing on record to suggest that the AO has carried out any further enquiry after receiving the necessary details. Therefore, in the entirety of facts and circumstances of the case and in light of judicial authorities quoted supra, we delete the addition made under section 68 of the Act. Addition of repair and maintenance expenses and disallowance made on account of repair and maintenance expenses - Held that - We have heard the rival contentions of both the parties and perused the material available on the record. Where the AO has verified the vouchers/bills submitted by the assessee on test check basis and has not found any defect therein, we see no justifiable reason to sustain the disallowance. Addition of advertisement and publicity expenses - Held that - It is the contention of the ld AR that expenditure was incurred in respect of publication in the newspapers which is duly supported by news paper cutting. However, there is no such finding by the lower authorities. The matter is accordingly set-aside to the file of the AO to examine the same a fresh Addition on account of alleged receipt of on-money as income of the assessee on the basis of custom and Central Excise Order passed against the assessee in earlier years - Held that - In the instant case, the AO has placed his reliance on the findings in the assessment order for AY 1996-97 and given that the Coordinate Bench has already taken a view in the matter referred supra, we do not see any reason for us to deviate from the said view taken by the Coordinate Bench. Nothing has been brought to the notice of the Bench in respect of whether CESTAT order has been pronounced or not since the date of passing of order by the Coordinate Bench in August 2016. Once the CESAT order is pronounced, the nature of implications as well as the years involved would be clear and the Revenue as well as the assessee would be in a better position to put foreword their respective contentions. Hence, the findings and directions contained in Coordinate Bench decision for AY 1996-97 shall apply mutatis mutandis to the impunged assessment year as well. Hence, ground of assessee is allowed for statistical purposes. Disallowance on account of difference in the rate of interest - Held that - It is not in dispute that the fixed deposits were placed with banks as margin money to avail the facility of bank guarantee which the appellant requires for the purposes of its business. The purpose of fixed deposit was thus not for the purposes of earning interest income but to secure bank guarantee for the purposes of business. At the same time, nothing has been brought on record to the attention of the Bench by either of the parties to determine what kind of irregularities had been revealed by the department of company affairs in matter of interest payment the basis for sustaining the disallowance by the ld CIT(A). In the interest of justice and fair play, we therefore remand the matter back to the file of the AO to examine the details of enquiry conducted by department of company affairs and how the same is relevant for the transaction under consideration. Ground no. 8 of assessee s appeal is allowed for statistical purposes. Valuation of perquisite in the hands of the employees will determine the allowability of expenditure incurred by the assessee on provision of such perquisites to its employees - Held that - The valuation of perquisites has been defined under section 17 of the Act and the same is relevant for the purposes of determining the taxability in the hands of the employees. Where there is any recovery by the employer from the employees, the same is adjusted while determining the value of the perquisite in the hands of the employees. The valuation of perquisite is thus relevant for determining the taxability in the hands of the employee and not for the purposes of allowability of expenditure which has been incurred in provision of such perquisite by the employer. In the hands of the employer, what is relevant to determine is whether the expenditure incurred by the employer in provision of various perquisite is as per the terms of employment and other related contractual arrangements entered into with the respective employee or not and as per the employment policy of the assessee company. In the instant case, it is not the case of Revenue that the expenditure on perquisite has been incurred by the assessee which is not supported by the employment contract of the respective employees or not in accordance with the employment policy. Further, the necessary details in respect of perquisite provided to Shri K. N. Modi were provided in the assessment proceedings as apparent from the assessment order itself and in respect of all the employees during the remand proceedings. We therefore do not agree with the findings of the ld CIT(A) in this regard. Ad hoc disallowance of interest payment - Held that - The matter is set-aside to the file of the AO to examine the above said contention of the assessee and where the same is found to be correct, the AO is directed to allow the necessary relief to the assessee following the order passed by the Coordinate Bench for AY 1996-97. Ground allowed for statistical purposes. Disallowance on account of interest on deposits with RSEB - Held that - AO has stated clearly in his remand report that The assessee has submitted a letter from JVVNL, M.I.A., Alwar bearing No. 2594 that no interest was paid by JVVNL on security amount deposited in F.Y. 1997-98. The same was allowed to be paid by JVVNL w.e.f. 13.08.2004 per annum. Once there is a clear finding of fact given by AO that no interest was payable by JVVNL or receivable by the assessee for the year under consideration and ld CIT(A) has also taken cognizance of the same, we are unable to understand what prejudice is caused to the Revenue. The provision for payment of interest by State Electricity Boards on security deposits of the customers was inserted by the Electricity Act, 2003 and interest is being received by the appellant from JVVNL, w.e.f 13.08.2004. In absence of any specific provision in the Electricity Act, 2003 which governs the terms of arrangement between the assessee and JVVNL, the imputed interest cannot be said to have accrued to the assessee company. We accordingly donot find any infirmity in the order of ld CIT(A) in deleting the disallowance of imputed interest of ₹ 60 lacs. Disallowance on account of valuation of stores and spares - Held that - CIT(A) deleted the addition made by the Assessing Officer by holding that the appellant has stated that the closing stock of stores and spares is valued at cost and has filed complete details of the computerized copy of the stock ledger. The AO has verified the stock register of stores and spares with relevant vouchers on test check basis in the course of remand proceedings and given his finding that stock of stores and spares has been valued at cost. In view of these facts, the ld CIT(A) has deleted the addition of ₹ 50 lacs made by the AO. Where the stock has been valued by the assessee as per accepted accounting policy at cost and the same has been verified by the AO to be in consonance with the said policy, we do not see any infirmity in the order of the ld CIT(A) in confirming the disallowance of such addition

Summary

Issues Involved:
1. Ad hoc trading addition on account of decrease in G.P. rate.
2. Disallowance of travelling expenses.
3. Disallowance of foreign travelling expenses.
4. Disallowance of motor car running expenses.
5. Addition under section 68 for unexplained share application money.
6. Disallowance of repair and maintenance expenses.
7. Disallowance of advertisement and publicity expenses.
8. Addition on account of alleged receipt of on-money based on Custom and Central Excise Order.
9. Disallowance on account of difference in the rate of interest.
10. Disallowance of perquisites to employees.
11. Disallowance out of interest payment.
12. Disallowance of interest on deposits with RSEB.
13. Disallowance on account of valuation of stores and spares.

Detailed Analysis:

1. Ad hoc trading addition on account of decrease in G.P. rate:
The assessee's appeal and the revenue's appeal both contested the confirmation and restriction of an ad hoc trading addition of ?20,00,000/- due to a decrease in the G.P. rate. The Tribunal found that the reasons for the decline in the G.P. rate were verified and accepted by the AO in the remand report. Therefore, the Tribunal deleted the trading addition of ?93.70 lacs made by the AO, allowing the assessee's appeal and dismissing the revenue's appeal.

2. Disallowance of travelling expenses:
The AO made an ad hoc disallowance of ?10,00,000/- for travelling expenses due to inadequate evidence. However, during remand proceedings, the AO verified the bills and vouchers on a test-check basis and found no defects. The CIT(A) deleted the disallowance, which was upheld by the Tribunal, dismissing the revenue's appeal.

3. Disallowance of foreign travelling expenses:
The AO disallowed ?5,00,000/- out of foreign travelling expenses, which was reduced to ?2,50,000/- by the CIT(A). The Tribunal found that the assessee provided adequate documentation, and there was no substantial evidence from the AO to justify the disallowance. The Tribunal allowed the assessee's appeal and dismissed the revenue's appeal.

4. Disallowance of motor car running expenses:
The AO disallowed ?5,00,000/- out of motor car running expenses, which was reduced to ?75,000/- by the CIT(A). The Tribunal found no specific discrepancy in the bills/vouchers and allowed the assessee's appeal, dismissing the revenue's appeal.

5. Addition under section 68 for unexplained share application money:
The AO added ?78,00,000/- as unexplained share application money under section 68. The Tribunal noted that the share application money came from existing promoters, and the necessary details were provided. The Tribunal deleted the addition, allowing the assessee's appeal.

6. Disallowance of repair and maintenance expenses:
The AO disallowed ?25,00,000/- out of repair and maintenance expenses, which was reduced to ?3,00,000/- by the CIT(A). The Tribunal found no defects in the verified vouchers and allowed the assessee's appeal, dismissing the revenue's appeal.

7. Disallowance of advertisement and publicity expenses:
The AO made a lump sum disallowance of ?5,00,000/- for advertisement and publicity expenses, which was reduced to ?70,000/- by the CIT(A). The Tribunal remanded the matter back to the AO for fresh examination, allowing both the assessee's and revenue's appeals for statistical purposes.

8. Addition on account of alleged receipt of on-money based on Custom and Central Excise Order:
The AO added ?4,24,27,000/- based on earlier years' findings by the Central Excise Department. The Tribunal noted that no such case was made for the year under consideration and remanded the matter back to the AO, allowing the assessee's appeal for statistical purposes.

9. Disallowance on account of difference in the rate of interest:
The AO disallowed ?2,71,000/- due to a difference in the rate of interest. The Tribunal remanded the matter back to the AO to examine the details of the enquiry conducted by the department of company affairs, allowing the assessee's appeal for statistical purposes.

10. Disallowance of perquisites to employees:
The AO made an ad hoc disallowance of ?20,00,000/- for perquisites to employees, which was reduced to ?2,00,000/- by the CIT(A). The Tribunal found that the valuation of perquisites is relevant for determining taxability in the hands of employees, not for the allowability of expenditure by the employer. The Tribunal allowed the assessee's appeal and dismissed the revenue's appeal.

11. Disallowance out of interest payment:
The AO disallowed ?25,00,000/- out of interest payment based on findings from earlier years. The Tribunal remanded the matter back to the AO to examine the contention that there were no fresh ICDs and the disallowance made in AY 1996-97 was deleted. The Tribunal allowed the assessee's appeal for statistical purposes.

12. Disallowance of interest on deposits with RSEB:
The AO added ?60,00,000/- as imputed interest on deposits with RSEB. The Tribunal found that no interest was payable for the year under consideration and upheld the CIT(A)'s deletion of the addition, dismissing the revenue's appeal.

13. Disallowance on account of valuation of stores and spares:
The AO made a lump sum addition of ?50,00,000/- for valuation of stores and spares. The Tribunal found that the stock was valued at cost and verified by the AO. The Tribunal upheld the CIT(A)'s deletion of the addition, dismissing the revenue's appeal.

Conclusion:
The Tribunal allowed the assessee's appeal and dismissed the revenue's appeal on several grounds, remanding some issues back to the AO for fresh examination. The Tribunal emphasized the importance of adequate documentation and verification in sustaining or deleting additions and disallowances.