2012 (5) TMI 507 - AT - Income Tax

Dis-allowance u/s 40A(2)(b) on ground that both average manufactured cost and selling rate is less than the purchase rate of the assessee - assessee submitted that under business exigencies, purchases were made to tied over the crisis in the subsequent months when the raw material availability becomes very poor - Held that - CIT(A) had rightly deleted the addition by comparing the purchase price paid by the assessee with the market price prevalent at the time of purchase, keeping in view the fact that the materials were supplied on FOR and the appellant had saved notional interest on working capital for a period of about 8 months - Decided in favor of assessee. Legal expenses incurred for increase in authorized share capital of the company - capital vs revenue expenditure - Held that - Expenditure incurred for increase in the share capital of the company after commencement of business is not a capital expenditure but a regular business expenditure of revenue nature - Decided in favor of assessee. Addition made on account of illegal transportation and illegal stock - survey - assessee contended that additions are based upon surmises and assumptions without placing any corroborating material and observations purely on the basis of third party reports the findings which were also stayed by the higher authorities - Held that - Following the Tribunal order in the case of M/s JP Stone Crushers (P) Ltd. v. DCIT based upon identical facts, issues involved on these points in this appeal are restored back to the file of the Assessing Officer for fresh adjudication after taking into account the final outcome of survey. Dis-allowance u/s 40(a)(ia) - non-deduction of tax at source - Revenue contending hiring of machine and equipments as transportation contract - AY 2005-06 - Held that - From the facts of the case it is established that agreement was for lease of dumpers/JCB only and there was no agreement for executing any work or contract and hence cannot be classified as works contract or a service contract. See DCIT v. Satish Aggarwal & Co 2008 (11) TMI 322 (Tri) - Decided in favor of assessee. Deduction u/s 80IB - dis-allowance on ground that it was not claimed in the original return of income - Held that - If an assessee under a mistake, misconception or not being properly instructed is over-assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes are collected. Matter restored to the file of the Assessing Officer - Decided in favor of assessee for statistical purposes.

Issues Involved:
1. Disallowance under Section 40A(2)(b) of the Income Tax Act, 1961.
2. Addition of legal fee as capital expenditure.
3. Addition on account of illegal transportation.
4. Addition on account of illegal stock.
5. Disallowance under Section 40a(ia) for non-deduction of TDS on lease rent.
6. Non-allowance of deduction under Section 80-IB.

Detailed Analysis:

1. Disallowance under Section 40A(2)(b):
The Department contended that the CIT(A) erred in deleting the addition of Rs. 16,33,645/- made under Section 40A(2)(b) due to excessive payment for purchases from a sister concern. The assessee argued that the purchases were made at market rates and included considerations like delayed payments and freight savings. The CIT(A) accepted these arguments, noting that the purchase rate of Rs. 18.50 per qtl. was justified given the market price of Rs. 20 per qtl. at the time. The Tribunal upheld the CIT(A)'s decision, noting the proper consideration of market price, interest savings, and freight costs, and dismissed the Department's appeal.

2. Addition of Legal Fee as Capital Expenditure:
The Department challenged the deletion of Rs. 53,000/- added as capital expenditure for increasing the authorized share capital. The assessee claimed it as a regular business expense incurred after business commencement. The CIT(A) agreed, treating it as revenue expenditure. The Tribunal upheld this view, stating that expenses incurred post-business commencement for increasing share capital are revenue in nature, and dismissed the Department's appeal.

3. Addition on Account of Illegal Transportation:
The assessee contested the addition of Rs. 49,00,462/- based on alleged illegal transportation per the DM Nainital's order. The CIT(A) upheld the addition, relying on the official report. The Tribunal, referencing similar cases, remitted the issue back to the Assessing Officer for fresh adjudication, considering the final outcome of the survey by state authorities.

4. Addition on Account of Illegal Stock:
Similarly, the assessee disputed the addition of Rs. 45,89,133/- for illegal stock. The CIT(A) confirmed the addition based on official reports. The Tribunal, following precedent, remitted this issue back to the Assessing Officer for reconsideration after the final survey results, ensuring due process for the assessee.

5. Disallowance under Section 40a(ia) for Non-Deduction of TDS:
The assessee challenged the disallowance of Rs. 62 lakhs for non-deduction of TDS on lease rent payments. The CIT(A) upheld the disallowance, treating the payments as contractual under Section 194C. The Tribunal, however, found that the agreements were for leasing equipment, not works contracts, and cited similar cases where such payments did not attract TDS under Section 194C. The Tribunal allowed the assessee's appeal, reversing the disallowance.

6. Non-Allowance of Deduction under Section 80-IB:
The assessee argued for the deduction under Section 80-IB despite not claiming it in the original return. The CIT(A) denied the claim as it was not raised during assessment. The Tribunal, referencing judicial precedents, held that legitimate claims should be considered even if not initially made. It remitted the issue back to the Assessing Officer for proper adjudication as per law.

Conclusion:
The Tribunal dismissed the Department's appeal and allowed the assessee's appeal, remitting specific issues back to the Assessing Officer for fresh consideration.

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