2020 (2) TMI 1226 - AT - Income Tax

Disallowance of expenditure incurred towards life tax and registration charges - revenue or capital expenditure - HELD THAT - We do not agree to the view of the Ld. AO and partially agree to the view of the Ld. CIT (A). Motor Vehicle Tax for a stipulated period (normally for a period of 10 years or as the case may be) is collected in advance at the time of the sale of the new vehicle. Therefore, it is revenue expenditure which is pre-paid in nature. In such circumstances, the pre-paid expenditure is to be proportionally treated as revenue expenditure over the period of the validity of Motor Vehicle Tax collected in advance. i.e., if the Motor Vehicle Tax is collected for a period of 10 years, the pre-paid amount has to be allowed as deduction for the period of 10 years in equal instalments. It is pertinent to mentioned that as held by the Ld. CIT (A), the pre-paid Motor Vehicle Tax may also be treated as expenditure which goes to add the cost of the vehicle because predominantly the life of the vehicle is considered to be the same as the period for which the Motor Vehicle Tax is collected in advance. In such case, the assessee will be entitled for the benefit of depreciation towards the cost of the vehicle and the pre-paid Motor Vehicle Tax paid in advance as held by the ld. CIT (A). In this circumstance, we hereby direct the ld. AO to either allow depreciation as explained by us hereinabove or the pre-paid expenditure in instalment as illustrated hereinabove whichever is more beneficial to the assessee. With respect to Registration Charges paid at the time of acquiring the new vehicle, no doubt it is attributable to the cost of the vehicle as held by the Ld. CIT (A) for which the assessee is entitled to the benefit of depreciation. Inflated expenditure on Granite processing and dressing charges u/s. 37(1) - Sustaining 50% of the addition - HELD THAT - Revenue Authorities has not looked into the scope, volume and nature of work carried out by the proprietorship firm. Further, it is evident that the Ld. CIT (A) has accepted that certain work was carried out for processing the granites otherwise the granite slabs could not be exported. From this, it is evident that the entire disallowance made by the Ld. AO and partly sustained by the Ld. CIT (A) is based on surmises and conjectures and without examining the quantum of work performed by the proprietorship firms. Moreover, when the proprietorship concerns were no required to maintain books of accounts as per Section 44AD of the Act, Revenue cannot take any adverse inference for those proprietorship concerns in not maintaining the books of accounts. It is a settled legal position that additions made on the basis of presumption is not sustainable in law. Therefore, we do not find any merit in the disallowance made by the ld. AO which was partly sustained by the Ld. CIT (A). Hence, we hereby direct the Ld. AO to delete the additions made and sustained in the hands of the assessee on this issue. Accordingly, this ground raised by the assessee is decided in its favour. Unaccounted expenditure - HELD THAT - The cheque payment made by the assessee cannot be verified and the same cannot be brushed aside by stating that the cheque payment cannot be reconciled. In this situation, we do not find any merit in the order of the ld. AO for making addition in the hands of the assessee. However, in the interest of justice, we remit the matter back to the file of the Ld. AO in order to verify whether the payment of ₹ 8 lakh is made by cheque, the expenditures incurred aggregating to ₹ 4,20,845 are entered in the books of account of the assessee and the amount of ₹ 17 lakh is treated as unexplained investment in the hands of M/s. Reliance Granite Pvt ltd., for the AY 2003-04 and if found so, delete the addition and if found otherwise, decide the matter in accordance with law and merits by passing a speaking order. It is ordered accordingly. Levy of interest U/s. 234A - default in furnishing the return of income - AR submitted that the due date of filing of the income tax return for the AY 2003-04 was extended up to 30.11.2003 as per section 119 of the Act and the assessee had filed the return of income within such due date on 27/11/2003 - HELD THAT - Since these facts are not verified by the Ld. AO as well as not addressed by the ld. CIT (A), we remit back the matter to the file of the Ld. AO for fresh consideration. Needless to mention that if there is no default in furnishing the return of income by the assessee then, interest cannot be levied U/s. 234A. Unexplained cash receipts u/s 68 - HELD THAT - Finding of the Ld. CIT (A) is that the same income was assessed in the hands of another assessee and therefore, it cannot be taxed one again in the hands of the assessee-company as it would amounts to double taxation. Hence, the ld. CIT (A) deleted the addition which is appropriate. Since, the Revenue has not come out with any other material or argument to negate the finding of the ld. CIT (A) we do not find it necessary to interfere with his order. Unaccounted investment - CIT-A directing the Ld. AO to verify the source for acquiring land - HELD THAT - When the assessee had made such detailed submission before the ld. Revenue Authorities and since the payments were made by Demand Draft by M/s. Nova Granite (India) Pvt Ltd., on behalf of the assesseecompany which are all verifiable facts from the books of account of the assessee and from the bank statements, it appears that the ld. Revenue Authorities has not fulfilled their obligations and to make their task easy made additions in the hands of the assessee by surmises and conjectures which is not appreciable. In this situation, in order to avoid hardship to the assessee and keeping in view of the failure on the part of the Revenue to verify the particulars submitted by the assessee, in the interest of justice, we are of the considered view that the addition of ₹ 20 lakhs in the hands of the assessee on this issue cannot be sustained. Therefore, we hereby direct the ld. AO to delete the addition made for ₹ 20 lakhs in the hands of the assessee on this issue. Addition towards difference in sale - HELD THAT - CIT (A) granted relief to that extent and sustained the balanced amount of ₹ 75,285/-. Since the assessee could not reconcile the difference amount of ₹ 75,285/- before the Ld. Revenue Authorities and before us, at this stage, we do not have any other option but to sustain the addition of ₹ 75,285/-. Accordingly, we do not find it necessary to interfere with the order of the Ld. CIT (A) on this issue. Penalty paid to Central Excise Department - HELD THAT - We find merit in the submission of the ld. AR. Explanation-1 to section 37 prohibits any expenditure incurred by the assessee which is related to an offence or any expense prohibited by law. In the case of the assessee it appears that the expenditure incurred by the assessee with respect to payment made to Central Excise is in regard to noncompliance of the provisions of the Act which is only penal in nature and it is not an act which is prohibited by law or with respect to any offence. Hence, we hereby direct the ld. AO to delete the addition. Addition made towards interest paid for delayed remittance of tax deducted at source - HELD THAT - We find merit in the submission of the ld. AR. Explanation-1 to section 37 prohibits any expenditure incurred by the assessee which is related to an offence or any expense prohibited by law. In the case of the assessee it appears that the expenditure incurred by the assessee with respect to payment made to the Revenue is in regard to interest paid on the delayed remittance of TDS which is compensatory in nature and is not expense which is prohibited by law or with respect to any offence. Hence, we hereby direct the ld. AO to delete the addition. Additional depreciation U/s. 32(1)(iia) of the Act on plant and machinery, mining equipment etc. - HELD THAT - Referring to Circular No.729 dated 1/11/1995 issued by the CBDT ctivity of the assessee being cutting, polishing and sizing of the granites, the ld. CIT (A) held that it amounts to manufacturing activity / production of goods as envisaged under the Act. Accordingly, the Ld. CIT (A) granted relief to the assessee by allowing the claim of additional depreciation. We do not find any infirmity in the order of the Ld. CIT (A) as he has only relied on the Circular of the CBDT and the fact that the assessee s activity was cutting, polishing and sizing of granite is not in dispute. Therefore, the order of the ld. CIT (A) does not call for any interference. Hence, the appeal of the Revenue on this issue is devoid of merit. Addition on account of sale of scrap - AO added the same to the income of the assessee only for the reason that during the survey proceedings assessee had admitted it as not recorded in the books of accounts - HELD THAT - When the matter cropped up before the Ld. CIT (A), the assessee explained that the amount was recorded in the books of accounts and also included in VAT return. Since the assessee did not produce the books of accounts before the ld. AO, the Ld. CIT (A) remanded the matter back to the file of the Ld. AO for verification. We do not find any infirmity in the order of the ld. CIT (A) on this issue and accordingly we hereby direct the Ld. AO to examine the issue afresh providing proper opportunity to the assessee of being heard.

Summary

Issues Involved:
1. Addition made without incriminating materials found at the time of search.
2. Disallowance of expenditure incurred towards life tax and registration charges.
3. Sustaining 50% of the addition made towards inflated expenditure on Granite processing and dressing charges.
4. Addition towards payment made to an individual as unaccounted expenditure.
5. Addition towards levy of interest under section 234A of the Act.
6. Deletion of the addition towards unexplained cash receipts.
7. Verification of source for acquiring land.
8. Sustaining the addition towards difference in sale.
9. Disallowance of additional depreciation.
10. Deduction under section 10B of the Act.
11. Addition towards prior period expenses.
12. Addition towards interest paid for delayed remittance of tax deducted at source.
13. Disallowance towards foreign exchange fluctuation.
14. Verification of addition made on account of sale of scrap.

Detailed Analysis:

1. Addition made without incriminating materials found at the time of search:
The assessee withdrew this ground, and thus it does not survive for adjudication.

2. Disallowance of expenditure incurred towards life tax and registration charges:
The AO disallowed the expenditure as it was considered capital in nature. The CIT (A) upheld this view. The Tribunal partially agreed, stating that Motor Vehicle Tax should be proportionally treated as revenue expenditure over its validity period or as a capital expenditure entitled to depreciation. Registration charges should be treated as capital expenditure, eligible for depreciation.

3. Sustaining 50% of the addition made towards inflated expenditure on Granite processing and dressing charges:
The AO disallowed the expenditure due to lack of documentary evidence from related parties. The CIT (A) allowed 50% of the expenses, acknowledging some work was done. The Tribunal found the disallowance by the AO and CIT (A) was based on surmises and conjectures, directing the AO to delete the additions.

4. Addition towards payment made to an individual as unaccounted expenditure:
The AO added this amount as unaccounted expenditure based on seized documents. The CIT (A) directed verification of the explanation provided by the assessee. The Tribunal remitted the matter back to the AO for verification and deletion of the addition if the assessee's claims were found valid.

5. Addition towards levy of interest under section 234A of the Act:
The AO levied interest for default in furnishing the return of income. The Tribunal remitted the matter back to the AO for fresh consideration, directing that interest should not be levied if there was no default.

6. Deletion of the addition towards unexplained cash receipts:
The AO added unexplained cash receipts found during search. The CIT (A) deleted the addition, noting the same income was assessed in another entity's hands, preventing double taxation. The Tribunal upheld this deletion.

7. Verification of source for acquiring land:
The AO added the amount as unaccounted investment. The CIT (A) directed the AO to verify the claim. The Tribunal found merit in the assessee's submission and directed the AO to delete the addition after verification.

8. Sustaining the addition towards difference in sale:
The AO added the difference between sales as per ledger and P&L account. The CIT (A) granted partial relief. The Tribunal upheld the addition of the remaining unreconciled amount.

9. Disallowance of additional depreciation:
The AO disallowed additional depreciation on the grounds that the activity did not amount to manufacturing. The CIT (A) allowed the depreciation, relying on a CBDT Circular. The Tribunal upheld this view.

10. Deduction under section 10B of the Act:
The AO denied the deduction, stating the activity did not constitute manufacturing and involved reconstitution of an existing business. The CIT (A) allowed the deduction, relying on a CBDT Circular and clarifying the transaction did not constitute reconstitution. The Tribunal upheld this decision.

11. Addition towards prior period expenses:
The AO disallowed prior period expenses. The CIT (A) remanded the matter for de novo consideration. The Tribunal directed the AO to delete the addition as it was made without proper explanation.

12. Addition towards interest paid for delayed remittance of tax deducted at source:
The AO disallowed the interest payment. The Tribunal found the payment compensatory and not an offence or prohibited expense, directing deletion of the addition.

13. Disallowance towards foreign exchange fluctuation:
The AO disallowed the expense, treating it as capital expenditure. The CIT (A) upheld the disallowance but granted depreciation. The Tribunal found no infirmity in this decision.

14. Verification of addition made on account of sale of scrap:
The AO added the sale of scrap as unrecorded income. The CIT (A) remanded the matter for verification. The Tribunal upheld this remand for fresh examination.

Conclusion:
The Tribunal partly allowed the assessee's appeals for statistical purposes and dismissed the Revenue's appeals.