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2021 (7) TMI 1170 - AT - Income TaxDifference in the amount of lease money claimed by the assessee and that confirmed by the Mining Department - HELD THAT - It is an admitted fact that the account statement received from the mining department is not complete and it doesn t contain the details of payments of royalty for month of December 2011 and January 2012 as admitted by the AO in his remand report dated 24.01.2018. Therefore, the said statement cannot be a sole basis for denying the claim of the assessee where the assessee has submitted the details of actual payment of royalty during the said period of Dec 2011 to Jan 2012. Therefore, on the face of actual payment which has been made and credited to the account of the mining department as so claimed, the claim of the assessee deserve to be allowed - we set-aside the matter to the file of the AO for the limited purposes of verifying the said payments so claimed by the assessee as made to the mining department and where the same is found to be in order, allow the necessary relief to the assessee subject to ₹ 72,79,773/- as claimed by the assessee and which is subject matter of disallowance. The ground of appeal is thus allowed for statistical purposes. Addition u/s 41(1) - HELD THAT - We find that the liabilities are still being recognized in the books of accounts of the assessee and there is nothing on record in terms of remission/cessation of liability. Therefore, the addition so made is hereby directed to be deleted and the ground of appeal is allowed. TP Adjustment - ALP towards interest on loans to M/s Malmor Enterprises INC USA to whom the loan has been advanced by the assessee - HELD THAT - The contention that the outstanding loan has been brought forward from preceding year and there is no fresh loan/advance during the relevant previous year, therefore the same cannot be characterized as international transaction during the relevant previous year u/s 92CA(3) of the Act is bereft of any merit. Once a transaction has been characterized as an international transaction and the same continue to remain outstanding during the relevant financial year, there is no necessity to record a fresh finding as far as characterization of the said transaction is concerned and only thing which needs to be determined is determination of ALP as relevant for the relevant year under consideration. In the instant case, the ld CIT(A) following the order of the Coordinate Bench for A.Y 2007-08 has restricted the ALP interest @ 8.9% as against 11.4% applied by the AO. The Revenue is not in appeal before us and the assessee has not been able to establish any alternate basis for determination of ALP, hence, the ground of appeal is hereby dismissed. Disallowance of depreciation claimed by the assessee on plant and machinery - AO has disallowed the depreciation on the plant and machinery as there was no activity towards manufacturing of readymade garments carried on by the assessee during the year and as a result, the assets have not been put to use during the relevant previous year - HELD THAT - Similar findings have been recorded by the AO in A.Y 2011-12 and against such findings, there is nothing on record that the assessee has challenged the said findings before the appellate authority. Once under similar fact pattern, depreciation claim has been disallowed by the AO and the assessee having not challenged the same and thus accepted the position adopted by the AO, the principle of consistency warrants that no interference is called for - We find that similar contentions have been raised before the ld CIT(A) who has rightly considered the same and disallowance of depreciation claim has rightly been upheld by him. The findings of the ld CIT(A) are hereby affirmed and the ground of appeal is dismissed. Disallowing the interest paid to Banks holding the same as attributable to interest free loans provided by the assessee to its sister concerns - HELD THAT - Though it is the claim of the assessee that loans/advances in the name of sister concerns in most of the cases have been brought forward from preceding years and have no nexus with interest bearing funds, however, there is nothing on record to substantiate the said contentions. Even where the loans and advances have been lent in earlier years, the onus still lies with the assessee to demonstrate that in the year when the funds were advanced, the same had no nexus with borrowed funds and were from the interest free funds. Given that the loans and advances continue to remain outstanding as well as the fact that loans taken by the assessee continue to remain outstanding and the interest expense have been claimed, proportionate disallowance of interest has been made by the AO and which has rightly been upheld by the ld CIT(A). Therefore, we donot find any infirmity in the findings of the ld CIT(A) and the same are hereby confirmed and the ground of appeal is hereby dismissed. Addition of penalty paid to Mining Engineer, Jaipur for breach of contractual obligations - HELD THAT - We find that all the contentions raised before us have been raised earlier before the ld CIT(A) and which have been duly considered by him. Merely passing a journal entry in the books of accounts is not determinative of the incurrence of the expenses and claim thereof for tax purposes. There is nothing on record in terms of any demand notice from the mining department or actual payment by the assessee towards such penalty. Though it is the claim of the assessee that the amount has been paid by account payee cheques, however, there is nothing on record to substantiate the said contentions. Therefore, we donot find any infirmity in the findings of the ld CIT(A) and the same are hereby confirmed and the ground of appeal is hereby dismissed. Addition towards disallowance of various expenses - disallowance have been made on the ground that the expenses have been claimed through self-made vouchers and possibility of personal expenses of directors cannot be ruled out - HELD THAT - Unless the nature and quantum of expenses are specified, merely stating that expenses are supported by self-made vouchers cannot be a reason for disallowance. Further, as far as personal expenses of directors are concerned, only an apprehension has been raised and in any case, the assessee being a corporate entity, where any expenses of directors are incurred/borne by the assessee, what is relevant to examine is whether such expenses have been incurred pursuant to any arrangement or understanding between the two for the purposes of business or not. However, in absence of any specific finding by either of the authorities below, the disallowance so made and sustained is clearly adhoc in nature and the same is directed to be deleted.
Issues Involved:
1. Addition of ?72,79,773/- towards lease money. 2. Addition of ?1,24,906/- under Section 41(1) of the IT Act. 3. ALP adjustment on interest on loans to associated enterprises. 4. Disallowance of depreciation on plant and machinery. 5. Disallowance of interest paid to banks attributed to interest-free loans to sister concerns. 6. Addition of penalty of ?1,95,000/- paid to Mining Engineer. 7. Disallowance of various expenses amounting to ?1,96,360/-. Issue-wise Detailed Analysis: 1. Addition of ?72,79,773/- towards lease money: The assessee challenged the confirmation of an addition of ?72,79,773/- made by the AO. The assessee was engaged in mining and claimed lease money of ?4,76,67,240/- against gross royalty collection. The AO observed discrepancies in the payments to the Mining Engineer and computed a difference based on incomplete account statements. The AO added ?72,79,773/- to the returned income. During appellate proceedings, it was acknowledged that the account statement from the Mining Department was incomplete. The Tribunal set aside the matter to the AO for verifying the payments of ?74,00,000/- claimed by the assessee, allowing the relief subject to verification. 2. Addition of ?1,24,906/- under Section 41(1) of the IT Act: The AO observed that certain trade creditors' liabilities had ceased to exist and added ?1,24,906/- under Section 41(1). The assessee contended that the liabilities were acknowledged and not waived. The Tribunal found that liabilities were still recognized in the books and there was no remission or cessation of liability. The addition was directed to be deleted. 3. ALP adjustment on interest on loans to associated enterprises: The AO applied an interest rate of 11.40% p.a. on a loan to an associated enterprise, following a previous order. The CIT(A) reduced the rate to 8.9%. The assessee argued that no fresh loan was advanced during the relevant year. The Tribunal held that once characterized as an international transaction, the outstanding loan continues to qualify, and the ALP needs to be determined. The Tribunal upheld the CIT(A)’s rate of 8.9%. 4. Disallowance of depreciation on plant and machinery: The AO disallowed depreciation of ?10,25,961/- on plant and machinery as the assessee had no manufacturing activity during the relevant year. The assessee argued that the machinery was ready for use. The Tribunal noted that similar disallowance in the previous year was not challenged by the assessee, affirming the principle of consistency. The disallowance was upheld. 5. Disallowance of interest paid to banks attributed to interest-free loans to sister concerns: The AO disallowed ?1,45,982/- proportionate interest on borrowed funds used for interest-free loans to sister concerns. The assessee claimed the loans were old and had no nexus with borrowed funds. The Tribunal found no evidence to substantiate the claim and upheld the CIT(A)’s confirmation of the disallowance. 6. Addition of penalty of ?1,95,000/- paid to Mining Engineer: The AO disallowed ?1,95,000/- of the penalty claimed by the assessee, stating discrepancies in the account statement from the Mining Department. The assessee argued that the account statement was incomplete. The Tribunal found no evidence of actual payment or demand notice from the Mining Department and upheld the CIT(A)’s disallowance. 7. Disallowance of various expenses amounting to ?1,96,360/-: The AO made a lump sum disallowance of ?5,00,000/- on expenses due to self-made vouchers and potential personal expenses. The CIT(A) restricted it to 10%. The Tribunal found the disallowance to be adhoc and without specific findings, directing the deletion of the disallowance. Conclusion: The Tribunal provided relief on the lease money issue subject to verification, deleted the addition under Section 41(1), upheld the ALP adjustment and disallowance of depreciation, confirmed the disallowance of interest attributed to interest-free loans, and upheld the penalty disallowance. The disallowance of various expenses was directed to be deleted.
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