2021 (5) TMI 243 - AT - Income Tax

Disallowance of Excise Duty and Interest - HELD THAT - We find merit in the submissions of assessee that the liability was crystallized during the relevant financial year, moreover, the assessee made the payment of liability of excise duty and the interest thereon before the due date of filing return of income. Therefore, we direct the assessing officer to delete the entire disallowance of excise duty and interest thereon. In the result this ground of appeal is allowed. Disallowance of Depreciation on furniture provided at the residence of employee - CIT(A) after considering the submissions of the assessee held that Aniruddh Bhudeka is not the employee of the assessee and that the expenses were not for the purpose of business of the assessee. However, the disallowance of depreciation was restricted to 10%. Before us the assessee has not filed any evidence to prove the fact that Aniruddh Budheka was having any casual connection of employment with the assessee. Therefore, we do not find any merit in the ground of appeal raised by the assessee. Hence, the finding of the ld. CIT(A) is affirmed. Disallowance of sundry balance written off as trading loss - HELD THAT - So far as claim No.(i) of reversal of Export rebate credited twice in the books the assessee explained that excess income was booked earlier and is admissible to the extent of such amount. We found that the assessee has reasonably explained the right of to that extent. Claim No.(ii) with regard to given to workers, and has not been repaid or adjusted against the wage payable. This amount is also clearly admissible under section 28 of the Act. Claim No.(iii) relates to uncashable soiled notes is also clearly a trade loss under section 28 of the Act. Claim No.(iv) relates to difference in opening balance of various parties assessee has claimed this amount relates to Birla Cellulosic, Futura Poly and Vardhaman Syntex, which was due to difference in opening balance of those parties. Therefore, considering the fact the assessee huge turnover and some difference may occur due to human error, therefore, this amount is also allowed to be write off. Claim No.(v) relates trade deposit given in the course of business of ₹ 1,355/-. The said amount was deposits with Gujarat Gas, Ahmed Electricals, Indian Oils, Bharat Petroleum and BSES Ltd., and Sheetal Corporation. Since the amount was given during the course of business and was not refunded by various parties. Thus, this amount is also allowed as business loss. Claim No.(vi) relates to advances given for supply of store items which was not refunded nor the items were supplied. This amount was also paid as a business activities and loss thereof is allowable under business law. Claim No.(vii) relates to purchase of advance license for importing flex fiber assessee claimed that due to market conditions the flex fibers were not imported and such license could not be used and on expiry of license period it was write off. We find that assessee claim is admissible under section 28 of the Act in Business Loss. Claim No.(viii) relates to payment to Techno Economic Viability Report but the project was not undertaken for business reasons. We find that expenses incurred on such Techno Economic Viability are admissible under section 37 of the Act and are allowable expenses. Claim No.(ix) relates to advance paid to SLM Manieklal. The assessee claimed that advance was given purchase of machinery, machinery could not be purchased in time. The said company was declared as sick by Board of Industrial Financial and Reconstruction (BIFR) and it became impossible to recover the advance. In our view, this amount is also admissible as a business loss. In the result, this ground of appeal which consist of several claims as referred above are allowed. Disallowance of Electricity expenses in respect of residence of Employees Director - HELD THAT - Considering the facts that during the assessment the assessee provided the complete details of the various premises on which the assessee bore the electricity expanses as recorded by assessing officer in para 10 of his order however, the assessing officer has not investigated the genuineness of the claim by making independent inquires . The lower authorities have not disputed about the allotment of various residential unit, but disallowed the claim for the want of evidence, moreover the assessee has recovered rent which is offered for taxation, therefore, considering the totality of the facts we direct the assessing officer to allow the entire electricity expenditure. TDS u/s 195 - disallowance of brokerage commission payment to non-resident without TDS - HELD THAT - There is no dispute that the assessee paid brokerage and commission to the agents who rendered services outside India. Further the assessing officer has not brought any material on record that the income of the recipient is taxable in India. The Hon'ble Delhi High Court in CIT Vs EON Technology (P) ltd 2011 (11) TMI 20 - DELHI HIGH COURT held that when a non-resident agents operates outsides the country no part of his business arise in India, and since payment is remitted directly abroad, and merely because an entry in the books of accounts was made, it does not mean that the non- resident had received any payment in India. The Hon ble Apex Court in GE India Technology (P) Ltd 2010 (9) TMI 7 - SUPREME COURT held that in case the amount paid by the appellant to the foreign software supplier was not royalty and the same did not give rise to any income taxable in India and therefore, the appellant was not liable to deduct tax at source, it arise only when such remittance is chargeable under the Act under section 4, 5 or 9 - when the brokerage and commission to the agents who rendered services outside India and the income of recipient in not taxable in India, hence, the assessee was not under obligation to deduct tax at source on payment of such commission of brokerage. - Decided in favour of assessee. Penalty levied under section 271(1)(c) - HELD THAT - While deciding quantum appeal, we have deleted the disallowance on account of expenditure on excise duty and interest, sundry balance written off, disallowance of electricity expenses. However, the claim of depreciation is affirmed. Thus, no penalty on the addition/disallowance on account of excise duty, disallowance on sundry balance written off and electricity expenses would survive. So far as, confirmation of depreciation on furniture is concerned. The assessee claimed it revenue expenditure, the A.O. treated the same as capital expenditure and allowed the 15% depreciation. However, on appeal, the Ld. CIT(A) restricted the depreciation to 10%. In our view, the disallowance is based on difference of opinion between the assessee and assessing officer. Thus, no penalty on difference of opinion and on mere disallowance is levieable. Addition on account of interest received from the Municipal Corporation - No specific finding while levying penalty on this addition is recorded. The Ld. CIT(A) in para 11 of the impugned order discussed the fact in detail. As per the order of Ld. CIT(A), this amount was receivable by assessee which was adjusted by Municipality in F.Y. 2004-05 against the interest of ₹ 4,05,804/- and court expenses of ₹ 15,202/-. This compensation was offered by the assessee during the assessment proceedings. The explanation of assessee that it was offered voluntarily, was not accepted, the Ld. CIT(A) held that it was offered only when notice under section 142(1) dated 25.10.2007 was issued to furnish all the receipts during the year with regard to dispute with the Municipality and only then the assessee offered Assessing Officer in para 12 noted that assessee has filed inaccurate particulars of income in respect of all additions/disallowance. However, while levying the penalty under section 271(1)(c) of the Act, the A.O. held that all issues additions fall under the ambit Explanation 1 to section 271(1)(c). Explanation 1 to 271(1)(c) relates to deemed concealment, thus, in our view, the A.O. was not quite sure about the initiation and on levying the penalty. It is settled law that A.O. cannot levy the penalty other than the charges on which it was initiated. The Ld. CIT(A) has also not specified the specific charge and only held that A.O. correctly levied the penalty on this addition. Thus, the penalty order qua this addition is also not sustainable. In the result, the grounds of appeal raised by the assessee are allowed.

Summary

Issues Involved:
1. Disallowance of excise duty and interest.
2. Disallowance of depreciation on furniture.
3. Disallowance of sundry balances written off.
4. Disallowance of electricity expenses for employees and directors.
5. Disallowance of brokerage and commission payments for non-deduction of TDS.
6. Penalty under section 271(1)(c) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of Excise Duty and Interest:
The assessee challenged the disallowance of excise duty of ?29,36,235 and interest of ?15,11,014, arguing that the liability was crystallized during the financial year 2004-05 due to an interim order dated 15-04-2004. The Tribunal found merit in the assessee's submission, noting that the interim order directed payment within 30 days and the payment was made on 04-05-2004. The Tribunal concluded that the liability was indeed crystallized during the relevant financial year and directed the deletion of the disallowance.

2. Disallowance of Depreciation on Furniture:
The assessee claimed depreciation on furniture provided to an employee of a sister concern. The Tribunal upheld the disallowance, affirming that the furniture was not used for the assessee's business purposes and the employee was not directly connected with the assessee. Thus, the depreciation claim was not allowed.

3. Disallowance of Sundry Balances Written Off:
The Tribunal analyzed various claims under sundry balances written off, including export rebate reversal, advances to workers, unencashable notes, differences in opening balances, trade deposits, advances for stores, purchase of advance licenses, and techno-economic viability reports. The Tribunal allowed most claims, recognizing them as business losses under sections 28 and 37 of the Act, except where the assessee failed to provide sufficient evidence.

4. Disallowance of Electricity Expenses:
The Tribunal considered the electricity expenses for the residences of employees and directors. The assessee argued that these expenses were business-related, supported by rent recovery from employees. The Tribunal directed the allowance of the entire electricity expenditure, noting that the accounts were audited without adverse comments and rent recovery was offered for taxation.

5. Disallowance of Brokerage and Commission Payments:
The assessee paid brokerage and commission to non-resident agents for services rendered outside India without deducting TDS. The Tribunal found that the payments were not chargeable to tax in India as the services were rendered abroad. Citing the Supreme Court's decision in GE India Technology Co. P. Ltd. vs. CIT, the Tribunal held that the assessee was not required to deduct TDS and directed the deletion of the disallowance.

6. Penalty under Section 271(1)(c) of the Act:
The Tribunal reviewed the penalty levied for various disallowances and additions. Given that the Tribunal had deleted the disallowances on excise duty, sundry balances written off, and electricity expenses, the corresponding penalties were also deleted. For the depreciation on furniture, the Tribunal noted that the disallowance was based on a difference of opinion, not concealment of income. Similarly, the penalty on interest received from the Municipality was found unsustainable due to lack of specific findings by the Assessing Officer. Consequently, the Tribunal allowed the appeal against the penalty.

Conclusion:
The Tribunal provided relief to the assessee on most grounds, allowing the claims for excise duty, sundry balances written off, electricity expenses, and brokerage and commission payments. The penalty under section 271(1)(c) was largely deleted, except for the depreciation on furniture, where it was based on a difference of opinion. The appeal was partly allowed, reflecting a comprehensive review of the facts and legal positions.