2023 (7) TMI 1144 - AT - Income Tax

Unexplained investment in capital assets - CIT-A deleted the addition as assets have been shown in the regular books of account and no defect is found in such books, which were duly audited and certified by the auditors - HELD THAT - As observed that no books of accounts were submitted by the assessee during the course of assessment proceedings and therefore the AO did not get opportunity to examine the same and therefore there was no question of rejecting the same as well. AO made a specific observations that no documentary evidence regarding the investment was furnished during the course of assessment proceedings, and further source of such investment also remained unexplained. Accordingly,since the ld. CIT(A) has given no basis whatsoever for affording relief to the assessee with respect to this ground of appeal, the order passed by ld. CIT(A) with respect to this ground of appeal is directed to be set aside. Decided in favour of revenue. Payment of lease rent - Addition made as assessee has not been able to prove with evidence that this expenditure has in fact been incurred in the first place - CIT(A) allowed the appeal of the assessee on the ground that the assessee has furnished copies of lease deeds, where complete names, addresses and other details of lease transactions are appearing - HELD THAT - We observe that even before us, the assessee has not furnished any bank statement reflecting that the aforesaid payment was made to the lessor. Though, copies of lease deeds have been furnished and cheque details have also been furnished on plain paper, and it has been further submitted that all payments towards lease rents were paid through banking channels, however, the assessee has not been able to produce copies of bank statement evidencing that the payments have in fact been made to the lessor. Since the assessee has not been able to furnish copy of bank statement to substantiate that lease payments have been made to the lessor, the addition is liable to be sustained. Decided in favour of revenue. Provision for various expenses - Addition made as no documentary evidence has been submitted by the assessee - CIT(A) allowed the appeal of the assessee in part - HELD THAT - In our view, so far as opening balance of provision CIT(A) has not erred in allowing the appeal with respect to this issue. With respect to unpaid PF CIT(A) observed that since the assessee has already disallowed the aforesaid sum in the return of income, it would amount to double addition if the aforesaid said sum is again disallowed by the AO. Accordingly,CIT(A) gave relief to the assessee with respect to unpaid PF - We are of the considered view that the ld. CIT(A) on appreciation of facts has not erred in facts and in law in allowing the appeal of the assessee on this issue as well. With respect to provision for unpaid power bills of factory for March, 1997 we observe that the aforesaid amount was disallowed by the AO on specific ground that no documentary evidence has been filed by the assessee in support of the claim. Further, from perusal of the order passed by ld. CIT(A), it is observed that ld. CIT(A) has not given any basis whatsoever for allowing the assessee s appeal with respect to provision for power expenses - Accordingly, relief allowed by the CIT(A) with respect to unpaid power bills is directed to be set aside, since the assessee has failed to produce any evidence to substantiate the claim. Disallowance of interest payments - complete address of the parties was not furnished by the assessee and assessee also did not furnish any evidence in respect of interest payment made to the aforesaid three parties -relief has been given by the ld. CIT(A) to the assessee only on the basis that there was no defects which is pointed out by the Assessing Officer in the books of accounts - HELD THAT - We observe that ld. CIT(A) has not given any basis whatsoever for affording relief to the assessee. The assessee had not filed any documentary evidence giving details of communication address of the parties to whom interest was paid nor were any details filed as evidence to show actual payment of interest to the aforesaid three parties. Accordingly, looking into the instant facts of the case, the relief granted by the ld. CIT(A) to the assessee with respect to this ground of appeal is directed to be set aside. Disallowance on account of stock difference - HELD THAT - CIT(A) has simply accepted the assessee s verbal explanation regarding there being no difference in stock due to horizontal method of accounting being forwarded by the assessee. However, no further independent enquiry was made by ld. CIT(A). Accordingly, in the interest of justice, the matter is being restored to the file of Assessing Officer to carry out the necessary verification to ascertain whether there is any difference in stock or whether owing to the horizontal method of presentation followed by the assessee, there is no difference in actual terms, as asserted by the assessee. Disallowance on account of interest payment - AO added the above sum on the ground that the assessee gave no explanation for obtaining the loan or the utilization of aforesaid fund - HELD THAT - On going through the records, it is observed that the assessee had taken loan from Bank of India amounting to Rs. 5.84 crores on which interest was paid by the assessee. There is no specific allegation regarding the genuineness of loan taken or that and further the ld. CIT(A) made a specific observations that this loan had been taken from earlier years. However, we observe that while as per the assessee, he has furnished a bank statement to prove payment of interest, however, the contents thereof are not legible (pages 106-110 of paper book). Accordingly, the matter is being restored to the file of Assessing Officer only with the limited purpose to verify from the bank statement, whether interest has in fact been paid as stated by the assessee. Disallowance of Depreciation - HELD THAT - As assessee is eligible for claim of depreciation in respect of new vehicle purchased during the year under consideration. The details of additions to fixed assets, along with supporting evidence have also been placed on record before us. Assessee cross objection allowed. Disallowance out of prior period item - HELD THAT - As we observe that the above provisions have been made on account of year end unpaid expenses as on 31st March, 1997. The details of expenses have been summed up at page 98 of the paper book. Accordingly, given the facts of the case, assessee s cross objection is allowed. Disallowance of foreign exchange fluctuation loss - AO observed that in absence of any documentary evidence furnished by the assessee against claim of foreign exchange fluctuation, the aforesaid amount was liable to be added to the income of the assessee - HELD THAT - We observe that the assessee has not furnished any supporting details viz. copy of bank guarantee, copy of purchase contract with Singapore party etc. to substantiate the claim of foreign exchange to substantiate the genuineness of the claim. This fact has also been correctly observed by the ld. CIT(A) while upholding the addition. Accordingly, we find no infirmity in the order of ld. CIT(A) so as to call for any interference. Disallowance of insurance claim written off - HELD THAT - We are in agreement with the argument of the counsel for the assessee that for insurance claim to be written off there is no requirement that the same should have been offered as income in any earlier year. However, it is also observed that the assessee has filed no details/documents/evidence to substantiate that the above write off was due to settlement entered with Oriental Insurance Company for losses of Soya extraction. In absence of any documents/evidence in support of the write off, cross objection 1(iv) of assessee s cross objection is dismissed. Clearing and forwarding expenses - Addition made as despite several opportunities, assessee did not furnish any details with respect to the above claim - HELD THAT - As we observe that that the assessee has not furnished any documentary evidence with respect to clearing and forwarding charges. Though, we observe that the ld. CIT(A) did not pass speaking order while confirming the addition, but the assessee has also not filed any supporting whatsoever either before the AO or before ld. CIT(A) and also before the Assessing Officer in remand proceedings to support the genuineness of the aforesaid claim. Liquidity damages - CIT(A) confirmed the addition on the ground that assessee has been unable to demonstrate that the liquidity damages are not a capital expenditure and are not on account of purchase of any capital asset - HELD THAT - Apart from the explanation furnished by the assessee that the liquidity damages are on revenue account since they pertain to shortage and quality difference on material supplied, the assessee has not furnished any other supporting evidence such as correspondences exchanged with M/s. P G Godrej Ltd. for final settlement of invoice, invoices for goods supplied to M/s P G Godrej Ltd. and further no confirmation of the party was also placed on record at any stage before the Revenue Authorities as well as before us - Thus in absence of any supporting evidence whatsoever, we are of the considered view that the ld. CIT(A) has not erred in facts and in law in confirming the aforesaid addition. Miscellaneous Expenses - AO disallowed the entire claim for want of details and non-compliance on part of the assessee - HELD THAT - On going through the records of the case, we observe that no details of miscellaneous expenditure have been furnished by the assessee at any stage before the Revenue Authorities. No details with respect to miscellaneous expenditure (breakup of miscellaneous expenses or any supporting documents) were furnished either before the Assessing Officer or before ld. CIT(A) during the course of appellate proceedings. Therefore, the Revenue Authorities did never got an opportunity to examine the nature and/or genuineness of the aforesaid claim, and further no details with respect to miscellaneous expenditure have also been furnished before us as well. Accordingly, in the interest of justice, the matter is being restored to the file of Assessing Officer to enable the assessee to file necessary details. Penalty u/s 271(1) (c) - Concealment of income and furnishing inaccurate particulars of income - HELD THAT -Since in the preceding paragraphs, we have partly allowed the appeal of the Department in respect of several grounds and also dismissed some of the cross objections filed by the assessee, for reasons mentioned in the preceding paragraphs, accordingly, penalty levied u/s. 271(1)(c) of the Act with respect to the aforesaid additions are also directed to be sustained.

Summary

Issues Involved:

1. Admitting additional evidence under Rule 46A.
2. Deletion of addition as unexplained investment in capital assets.
3. Deletion of disallowance on account of payment of lease rent.
4. Deletion of disallowance on account of provision for various expenses.
5. Deletion of disallowance on account of interest payments.
6. Deletion of disallowance on account of stock difference.
7. Deletion of disallowance on account of interest payment.
8. Confirmation of various disallowances/additions in the assessee's cross objection.
9. Deletion of penalty under section 271(1)(c) of the Act.

Summary:

Issue 1: Admitting additional evidence under Rule 46A
The Department challenged the action of the CIT(A) in allowing the assessee to place additional evidence on record as per Rule 46A of the Income Tax Rules. The Tribunal found that the CIT(A) did not err in allowing the additional evidence, especially since ITAT had remanded the matter for fresh hearing with a direction to give the assessee due opportunity of hearing. Ground no. 1 of the Department's appeal was dismissed.

Issue 2: Deletion of addition as unexplained investment in capital assets
The Assessing Officer made an addition of Rs. 22,49,990/- on account of unexplained investment in capital assets. The CIT(A) allowed the appeal of the assessee on the grounds that no defects were found in the books of accounts. However, the Tribunal observed that no books of accounts were submitted during the assessment proceedings and the source of investment remained unexplained. Ground no. 2 of the Department's appeal was allowed.

Issue 3: Deletion of disallowance on account of payment of lease rent
The Assessing Officer disallowed Rs. 16,97,297/- on account of lease rent payment due to lack of evidence. The CIT(A) allowed the appeal based on the lease deeds provided. However, the Tribunal noted that the assessee did not furnish bank statements evidencing the payments. Ground no. 3 of the Department's appeal was allowed.

Issue 4: Deletion of disallowance on account of provision for various expenses
The Assessing Officer disallowed Rs. 15,64,126/- for various expenses. The CIT(A) allowed relief for most of the amount except for Rs. 9,88,622/- for unpaid power bills. The Tribunal observed that the CIT(A) did not provide a basis for allowing the appeal regarding power expenses. Ground no. 4 was partly allowed.

Issue 5: Deletion of disallowance on account of interest payments
The Assessing Officer disallowed Rs. 28,83,022/- for interest payments due to lack of evidence. The CIT(A) allowed the appeal based on the interest rate and lack of defects in the books of accounts. The Tribunal found no basis for the CIT(A)'s relief and allowed ground no. 5 of the Department's appeal.

Issue 6: Deletion of disallowance on account of stock difference
The Assessing Officer added Rs. 50,44,504/- for stock difference. The CIT(A) allowed the appeal based on the horizontal method of accounting. The Tribunal restored the matter to the Assessing Officer for verification. Ground no. 6 was allowed for statistical purposes.

Issue 7: Deletion of disallowance on account of interest payment
The Assessing Officer added Rs. 1,15,75,698/- for bank interest expenses. The CIT(A) allowed the appeal noting the loans were from earlier years. The Tribunal restored the matter to the Assessing Officer for verification. Ground no. 7 was allowed for statistical purposes.

Issue 8: Confirmation of various disallowances/additions in the assessee's cross objection
The Tribunal addressed various disallowances/additions confirmed by the CIT(A) in the assessee's cross objection:
- Depreciation (Rs. 1,14,211/-): Allowed.
- Prior period items (Rs. 54,868/-): Allowed.
- Foreign exchange fluctuation loss (Rs. 28,31,241/-): Dismissed.
- Insurance claim write-off (Rs. 13,10,590/-): Dismissed.
- Clearing and forwarding expenses (Rs. 11,94,298/-): Dismissed.
- Liquidated damages (Rs. 7,91,427/-): Dismissed.
- Miscellaneous expenses (Rs. 36,67,514/-): Allowed for statistical purposes.

Issue 9: Deletion of penalty under section 271(1)(c) of the Act
The Department appealed against the deletion of penalty under section 271(1)(c). The Tribunal noted that since the Department's appeal was partly allowed and some cross objections were dismissed, the penalty with respect to the sustained additions was also directed to be sustained. The Department's appeal was partly allowed.

Result:
Both the Department's appeals and the assessee's cross objections were partly allowed for statistical purposes.