2021 (11) TMI 923 - AT - Income Tax

Prior pried Expense adjustment - HELD THAT - As observed from the orders of authorities below that the assessee did not filed any details before the AO, while the assessee has filed additional evidences before ld. CIT(A) for the first time to support its stand. It is observed that ld. CIT(A) did not call for remand report/comments from AO on these additional evidences which is in breach of Rule 46A of the 1962 Rules. Further, the ld. CIT(A) has passed a non speaking cryptic order without offering reasons/comments for not allowing the claim of the assessee on each and every item of expenses claimed by assessee as 'Prior Period Expenses'. In our considered view based on facts and circumstances of the case, that the matter needs to be set aside and restored to the file of Assessing Officer for de-novo adjudication of the entire issue on merits in accordance with law. The assessee is directed to produce all relevant evidences/details/explanation before the Assessing Officer in set aside de-novo proceedings - ground of appeal is allowed for statistical purposes. Addition of difference in the Opening Stock in Current Year with that of Closing Stock of the immediately preceding year - AO observed from the record that there is a difference in Opening Stock in Current Year with that of the Closing Stock of the immediately preceding year - CIT(A) rejected the contentions of the assessee by upholding the additions to income made in the assessment order passed by Assessing Officer - HELD THAT - As observed that there is no difference between the closing stock of the preceding year with the opening stock of the current year, which was ₹ 150.12 lacs - DR has also fairly and correctly submitted that there is no difference in closing stock of preceding year with the opening stock of current year and the issue is to be decided in favour of the assessee. We have observed that as on 31.03.2011, the closing stock was ₹ 150.12 lacs and the opening stock as on 01.04.2011 was also ₹ 150.12 lacs. There is no difference at all between the closing stock in the preceding year and the opening stock in the current year, rather the AO adopted wrong figures of closing stock of current year with that of the increase/decrease in the stock of finished goods. CIT(A) passed cryptic order and did not elaborate on facts correctly. Thus, the authorities below erred in making addition. Thus, based on facts and circumstances of the case, the addition as made by authorities below is not sustainable in the eyes of law and is hereby ordered to be deleted. Allowability of set off of brought forward business losses and unabsorbed depreciation - HELD THAT - All the earlier year brought forwards business losses which assessee is seeking to set off and carry forward, should be assessed business losses and the return of income for those years ought to have been filed by the assessee within the time stipulated u/s. 139(1) and ought not to be belated return of income filed beyond the due date prescribed u/s. 139(1), otherwise it will be hit by provision of Section 80 and 139(3) So far as quantum of brought forward business losses and unabsorbed depreciation which were assessed to be carried forward to subsequent years and its period of allowability is concerned, we are of the considered view that these facts requires verification by Assessing Officer from the record, and the material on record available before us is not sufficient to give conclusive finding on these facts, and hence we are setting aside this matter to the file of AO for verification of facts and quantum of allowability of brought forward business losses and unabsorbed depreciation, and while allowing the carry forward of business losses, the AO shall also verify that the return of income was filed by assessee in time within due date prescribed u/s. 139(1) for those years and the loss assessed by Revenue to be carried forward for each of the years and period of allowability of business loss for eight assessment years as is available u/s. 72(3) of the 1961 Act. The assessee has also grievance that unabsorbed deprecation amount is wrongly mentioned in grounds of appeal filed with tribunal, this aspect shall also be verified by the AO from records and correct amount be accordingly considered after due verification of records. Depreciation @ 30% of total depreciation claimed on account of unverifiable fixed assets of closed unit at Allahabad and failure to establish usage of these assets for business purposes as is required u/s. 32 - HELD THAT - The contentions of the assessee that Building and Motor vehicles at Allahabad Manufacturing unit were used for business purposes, building for the purposes of Registered office and Motor Vehicle for the purposes of official usage by Directors, the facts on record are not sufficient to come to conclusive finding that these assets were actually used by assessee and further that these assets were wholly and exclusively for the business of the assessee company to satisfy the mandate of Section 32 and 38(2) of the 1961 Act. Further, contention of the assessee that it only claimed depreciation on Building and Motor Vehicle of Allahabad unit and no depreciation was claimed with respect to 'Plant and Machinery' installed at Allahabad Manufacturing unit, again the facts on record are not sufficient to give conclusive finding on this issue, in the absence of details/break-up furnished by the assessee. The assessee is also aggrieved that figure adopted by AO for disallowance of depreciation is not correct. Keeping in view totality of facts and circumstances of the case, we are of the considered view that the assessee will not be entitled for claiming depreciation on the closed Manufacturing unit at Allahabad, but, however, for verification and adjudication of other claims of the assessee as detailed by us in this order, such as user of building and Motor Vehicles of Allahabad Manufacturing unit for business purposes, that no depreciation was claimed in return of income filed with Revenue with respect to 'Plant and Machinery' installed at Allahabad Manufacturing unit, adoption of the correct amount of disallowance of depreciation, the matter need to be remitted back to the file of AO for fresh adjudication on merits in accordance with law. Disallowance of Rebate Expenses claimed by the assessee as deduction while computing income chargeable to tax under the head 'Profits and Gains from Business or Profession' - authorities below held that no income-tax was deducted at source by assessee u/s. 194H and the same is not allowable as deduction while computing income chargeable to tax - HELD THAT - The assessee has merely submitted credit notes, and no further details as to contract/agreement with parties, claim(s) raised by parties and evidences to substantiate the claims are bonafide and genuine etc., are furnished by assessee - material on record, is not sufficient to give conclusive finding that these rebate allowed were actually towards breakage or rate difference, and not commission. This requires verifications and evaluation of evidences to come to conclusive finding, firstly that these are business expenses which are incurred wholly and exclusively for business of the assessee and are genuine claims. Further, if the said expenses are within ambit of deduction of income-tax at source, then due income tax was deducted at source and paid to the credit of Central Government within the stipulated time, as is required for claiming deduction under the provisions of Section 40(a)(ia) of the 1961 Act. Thus, keeping in view, totality of facts and circumstances of the case, the matter need to be remitted back to the file of AO for fresh adjudication on merits in accordance with law. Needless to say that the AO shall provide proper and adequate opportunity of being heard to the assessee in set aside proceedings. The evidences/explanations submitted by assessee in its defense shall be admitted by AO, and adjudicated by AO on merits in accordance with law.

Summary

Issues Involved:
1. Delay in filing appeals.
2. Disallowance of prior period adjustments.
3. Disallowance of difference in opening stock.
4. Set off of brought forward business loss and unabsorbed depreciation.
5. Disallowance of depreciation for a closed plant.
6. Disallowance of rebate expenses.

Issue-wise Detailed Analysis:

1. Delay in Filing Appeals:
The tribunal noted that the appeals were filed late beyond the time prescribed under Section 253(3) of the Income-tax Act, 1961, with delays ranging from 36 to 139 days. The assessee filed an application for condonation of delay, supported by an affidavit from its Director Finance, explaining that the delay was due to the closing of accounts, audit, and outstation visits. The tribunal, referencing the Supreme Court decision in Collector Land Acquisition v. Mst. Katiji & Ors., condoned the delay in the interest of substantial justice and proceeded to adjudicate the appeals on merits.

2. Disallowance of Prior Period Adjustments (ITA No. 20/Alld/2020):
The assessee, engaged in manufacturing glass, claimed prior period adjustments of ?73.02 lakhs, which were disallowed by the AO due to lack of clarity and supporting evidence. The CIT(A) upheld the disallowance, noting the absence of reasons or nature of the adjustments from the assessee. The tribunal observed that the assessee filed additional evidence before the CIT(A) without a remand report from the AO, breaching Rule 46A. The tribunal set aside the matter for de novo adjudication by the AO, directing the assessee to provide all relevant evidence.

3. Disallowance of Difference in Opening Stock (ITA No. 20/Alld/2020):
The AO added ?44,000 to the income due to an alleged difference in opening stock. The assessee contended there was no such difference, and the CIT(A) upheld the addition. The tribunal found no discrepancy between the closing stock of the preceding year and the opening stock of the current year, noting an error by the authorities in comparing incorrect figures. The tribunal deleted the addition.

4. Set Off of Brought Forward Business Loss and Unabsorbed Depreciation (ITA No. 19/Alld/2020):
The AO denied the set off of brought forward business losses and unabsorbed depreciation as the return for AY 2012-13 was filed late. The CIT(A) upheld the AO's decision. The tribunal, referencing Sections 32(2), 72, 80, and 139(3) of the Act, concluded that while current year business losses cannot be carried forward due to the late filing, brought forward business losses and unabsorbed depreciation from earlier years can be set off against current year income. The tribunal remitted the matter to the AO for verification of the quantum and allowability of these losses and depreciation.

5. Disallowance of Depreciation for Closed Plant (ITA No. 21/Alld/2020):
The AO disallowed 30% of the total depreciation claimed, attributing it to the closed Allahabad unit, which was not used for business purposes. The CIT(A) upheld this disallowance. The tribunal noted that the assets were not used actively or passively for business and were intended for sale to clear financial liabilities. However, the tribunal remitted the matter to the AO for verification of claims regarding the usage of building and motor vehicles and the correct amount of disallowance.

6. Disallowance of Rebate Expenses (ITA No. 21/Alld/2020):
The AO disallowed ?17,12,24,716 claimed as rebate expenses, treating them as commission on which TDS was not deducted. The CIT(A) corrected the amount to ?1,71,24,716 but upheld the disallowance. The tribunal noted the assessee’s concession that ?58,72,488 was commission paid without TDS deduction and should be disallowed. For the remaining rebate expenses, the tribunal remitted the matter to the AO for verification of the nature of expenses and compliance with TDS provisions.

Conclusion:
The tribunal partly allowed the appeals for statistical purposes, remitting several issues back to the AO for fresh adjudication with directions to verify the claims and provide adequate opportunity to the assessee.