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2015 (1) TMI 965 - AT - Income TaxFall in G.P. rate from 18.52% in the preceding year to 15.71% during the year in question - rejection of books of accounts - CIT(A) deleted the addition - Held that - Since AO was swayed only by the decline in the G.P. rate to reject the books of account without anything else, we are of the considered opinion that such an action of the Assessing Officer has no sanction of law. The assessee has placed on record a copy of Chart, which was also filed before the Assessing Officer to demonstrate that there has been an alarming increase in the prices of steel round bar. The AO has not contradicted the contents of such chart. When we consider this factor pushing down the gross profit rate coupled with fact that the Assessing Officer has not pointed out any mistake in the quantitative records maintained by the assessee or the value of the closing stock, the only conclusion which in our considered opinion can be drawn is that the books of account were properly maintained. We, therefore, hold that the learned CIT(A) was justified in cancelling the action of the AO in rejecting the books and resultantly deleting the addition of ₹ 1.19 crore on this score. - Decided in favour of assessee. Unaccounted receipt of FDRs - CIT(A) deleted the addition - Held that - Once the receipt of deposits amounting to ₹ 44 lac from the six depositors is held to be genuine, the consequent disallowance of interest amounting to ₹ 1,94,710/- made by the Assessing Officer would automatically stand deleted. We, therefore, uphold the impugned order in deleting the addition of ₹ 45.94 lacs. - Decided in favour of assessee. Capital subsidy on sales tax - CIT(A) deleted the addition - Held that - As the nature of subsidy in the present facts and circumstances is undisputed, being towards the setting up of unit in remote and rural areas, the natural conclusion which therefore follows is that this subsidy is a capital receipt and not chargeable to tax. - Decided in favour of assessee. Apportionment of electricity expenses and Directors remuneration - Held that - It is observed that the assessee was consistently apportioning electricity expenses between factory premises and office building in the ratio of number of employees in the works and in administration office. This practice adopted by the assessee, has not been disturbed by the Revenue in the past. Once a particular accounting practice is consistently followed, then there is no rationale in disturbing the same.The Directors remuneration is an item of administrative expenses and cannot be considered as a part of trading account so as to qualify as a direct expense for the production of expenses. It is but natural that only the expenses in the trading account, which are otherwise direct in nature, can be considered in valuing the closing stock. No expense of the administration nature, which falls in the Profit and loss account can be considered for valuing the closing stock. In our considered opinion, there is no infirmity in the impugned order deleting this addition. - Decided in favour of revenue. Voluntary Retirement Scheme (VRS) expenses - CIT(A) deleted the addition - Held that - We find from the remand report that the AO has not disputed the amount of VR expenses for the two years in respect of which the ld.CIT(A) granted the relief. The AO simply stood by the action taken by him in the assessment order. To view of the ld. CIT(A) in allowing the relief is, therefore, upheld. As regards the other amount, we find that section 35DDA came to be inserted by the Finance Act, 2001 w.e.f. 1.4.2001 providing deduction under VRS @ 1/5 of the amount so paid in five equal installments. The claim of the assessee for making deduction for a sum of ₹ 1,06,210/- in respect of the year 2000-01 is clearly impermissible in view of section 35DDA coming into force later on. Such expenditure assuming the character of prior period expenses for the year in question for which the liability got crystalised and stood discharged in the earlier year cannot be allowed as deduction in the current year. - Decided in favour of assessee. Unascertained liability in the form of warranty claimed - CIT(A) deleted the addition - Held that - It is apparent that the last item is a debit for a sum of ₹ 2,36,150/- and, in the narration column, it has been mentioned being the provision . In view of this factual scenario, it becomes abundantly clear that the ld. CIT(A) erred in deleting this addition by considering the amount of ₹ 2.36 lac as warranty expenses actually incurred and not as a provision. The view taken by the ld. CIT(A) is, therefore, not sustainable. - Decided in favour of revenue. Insurance expenses - CIT(A) deleted the addition - Held that - As observed from the assessment order that the assessee did make a claim for deduction of insurance expenses. Not only that, the assessee also submitted before the AO, vide its reply dated 23.2.07 that the amount was paid to Bajaj Allianz and General Insurance Company Ltd., for a Standard Fire Policy for the calendar year 2005. When the facts are crystal clear that the assessee did make a claim for deduction of ₹ 4.93 lac, the view point of the ld. CIT(A) cannot be accepted unless the assessee shows that no deduction was claimed for the amount disallowed. Since necessary details were not instantly available with the ld.AR, we are of the considered opinion that it would be in the fitness of things if the impugned order on this issue is set aside and the matter is restored to the file of AO for a fresh determination. - Decided in favour of revenue for statistical purposes. Non deduction of TDS on freight and forwarding expenses and on the amount of printing and stationery - CIT(A) deleted the addition - Held that - In view of the fact that the assessee did deduct tax at source on the freight payments made to the above parties and such tax was duly deposited in the exchequer, we are of the considered opinion that the provisions of section 40(a)(ia) are not triggered. As regards non-deduction of tax at source on the amount of printing and stationery, as find that the details, it can be seen that these are for purchase of printing and stationery and there is nothing like any works contract having been carried out by the supplier. These are small amounts comprising of purchase of papers for balance sheet, material dispatch register, tags, excise challans and envelopes, etc. The definition of works under section 194C does not include such printing and stationery expenses. We, therefore, hold that the ld. CIT(A) was justified in deleting this addition. - Decided in favour of assessee. Cessation of liability u/s 41 - CIT(A) deleted the addition - Held that - The details of such amounts that some of them have been actually written back by the assessee in the succeeding year and the other amounts were existing liabilities not having ceased to exist. Merely because the creditor gets more than three years old, does not ipso facto obliterate the liability in itself. So long as the liability is payable, it cannot be considered as income. Taking into consideration the entirety of facts and circumstances of this issue, we are satisfied that the ld. CIT(A) was right in deleting the addition. - Decided in favour of assessee. Disallowance of foreign travel expenses - CIT(A) deleted the addition - Held that - foreign travelling expenses were incurred by the directors of the company who visited several countries where the company was making exports for last couple of years. In support of the deduction for expenses, the assessee also furnished copies of e-mails exchanged with the customers abroad. The AO in the remand report chose not to adversely comment on this evidence. In view of these facts, it is clear that such foreign travelling expenses were incurred for the purpose of the assessee s business and there is no warrant for making any disallowance.- Decided in favour of assessee. Addition of vehicle running and maintenance and telephone expenses expenses for non-business purpose - CIT(A) deleted the addition - Held that - The company is a separate legal entity distinct from its directors and the use of vehicles by the directors cannot be characterized as user for non-business purpose and, hence, no addition can be made. There cannot be any non-business user in so far as a company assessee is concerned. In view of the above discussion, we find that the ld. CIT(A) has taken an unimpeachable view in deleting disallowance of 20% of vehicle running and maintenance expenses for non-business purpose. - Decided in favour of assessee. Adiition entertainment expenses - CIT(A) deleted the addition - Held that - All the payments have been made through cheques and the assessee has mentioned the name and designation of the customer who was taken for meals, etc. In our considered opinion, there can be no reason for sustaining this disallowance. - Decided in favour of assessee. Addition on account of demurrage charges - CIT(A) deleted the addition - Held that - This amount represents excess freight charged by a customer M/s Mid West Truck Auto Parts, which was in turn, recovered by bank. Complete evidence and explanation in this regard was filed before the AO as well, who did not offer any adverse comment on the same. As this amount is nothing, but, excess freight charges, it cannot be treated as penal in nature warranting any disallowance in terms of Explanation 1 to section 37(1) of the Act. - Decided in favour of assessee. Addition on account of sales and business promotion expenses - CIT(A) deleted the addition - Held that - Gold items were distributed on the occasion of Diwali festival to its customers and complete details about the name and designation of the persons to whom such gifts were given, has been provided in the paper book. Invoices for the purchase of such gold items are also available on record. In so far as shaguns are concerned, the assessee is in the practice of giving shaguns on the occasion of girl marriage in the family of its employees. On random basis, a receipt from the recipient along with the copy of the wedding card has also been made available. Thus the ld. CIT(A) was justified in deleting the addition. - Decided in favour of assessee.
Issues Involved:
1. Deletion of addition due to fall in G.P. rate. 2. Deletion of addition under Section 68 of the Act. 3. Deletion of addition on account of capital subsidy on sales tax. 4. Deletion of addition due to valuation of stock. 5. Deletion and sustenance of disallowance of VRS expenses. 6. Deletion of addition on account of unascertained liability in the form of warranty claimed. 7. Deletion of addition on account of insurance expenses. 8. Deletion of addition under Section 40(a)(ia) of the Act. 9. Deletion of addition on account of cessation of liability. 10. Deletion of addition on account of foreign travel expenses. 11. Deletion of addition on account of vehicle running and maintenance expenses. 12. Deletion of addition on account of telephone expenses. 13. Deletion of addition on account of entertainment expenses. 14. Deletion of addition on account of demurrage charges. 15. Deletion of addition on account of sales and business promotion expenses. Issue-wise Detailed Analysis: 1. Deletion of Addition Due to Fall in G.P. Rate: The Revenue's first ground of appeal contested the deletion of an addition of Rs. 1,19,93,081/- due to a fall in the G.P. rate from 18.52% to 15.71%. The Assessing Officer (AO) rejected the books of account under Section 145(3) of the Act, attributing the fall to an increase in steel prices. The CIT(A) deleted the addition, and the Tribunal upheld this decision, noting that the AO provided no substantial reason for rejecting the books other than the decline in the G.P. rate. The Tribunal emphasized that judicial precedents do not support rejecting books solely based on a decline in the G.P. rate. 2. Deletion of Addition Under Section 68 of the Act: The second issue involved the deletion of an addition of Rs. 45,94,710/- under Section 68. The AO treated deposits from six individuals as bogus due to the assessee's failure to produce them. The Tribunal evaluated the evidence, including confirmations, bank statements, and tax returns of the depositors, and found the transactions genuine. Consequently, the deletion of the addition by the CIT(A) was upheld. 3. Deletion of Addition on Account of Capital Subsidy on Sales Tax: The third issue concerned the deletion of an addition of Rs. 21,68,938/- treated as revenue receipt by the AO. The Tribunal agreed with the CIT(A) that the subsidy, given for setting up units in rural areas, was capital in nature and not taxable. The Tribunal referenced the Special Bench decision in Sulzer India Ltd. and the Bombay High Court's affirmation of the same. 4. Deletion of Addition Due to Valuation of Stock: The fourth issue addressed the deletion of an addition of Rs. 10,62,270/- related to stock valuation. The AO had re-apportioned electricity expenses and included directors' remuneration in the valuation of closing stock. The Tribunal upheld the CIT(A)'s decision, noting the consistent accounting practice followed by the assessee and the administrative nature of directors' remuneration. 5. Deletion and Sustenance of Disallowance of VRS Expenses: The fifth issue involved the deletion of Rs. 1,42,141/- and sustenance of Rs. 1,06,210/- out of VRS expenses. The Tribunal upheld the CIT(A)'s decision on both counts, noting that the deduction for the year 2000-01 was impermissible due to the later enactment of Section 35DDA, and the remaining amount was properly accounted for. 6. Deletion of Addition on Account of Unascertained Liability in the Form of Warranty Claimed: The sixth issue involved the deletion of an addition of Rs. 2,36,150/- for warranty claims. The Tribunal found that the CIT(A) erred in considering the amount as actual expenses rather than a provision. The matter was remitted to the AO to verify if the provision was made on a scientific basis. 7. Deletion of Addition on Account of Insurance Expenses: The seventh issue addressed the deletion of an addition of Rs. 3,70,335/- related to insurance expenses. The Tribunal remitted the matter to the AO to verify if the amount was claimed as a deduction and, if so, to disallow the pre-paid portion. 8. Deletion of Addition Under Section 40(a)(ia) of the Act: The eighth issue involved the deletion of an addition of Rs. 30,09,023/- for non-deduction of TDS on freight and printing expenses. The Tribunal found that the assessee had deducted and deposited TDS on freight payments and that the printing expenses did not constitute a works contract under Section 194C. 9. Deletion of Addition on Account of Cessation of Liability: The ninth issue concerned the deletion of an addition of Rs. 23,889/- under Section 41. The Tribunal upheld the CIT(A)'s decision, noting that the liabilities were either written back in the succeeding year or still existed. 10. Deletion of Addition on Account of Foreign Travel Expenses: The tenth issue involved the deletion of an addition of Rs. 15,36,144/- for foreign travel expenses. The Tribunal upheld the CIT(A)'s decision, noting that the expenses were incurred for business purposes and supported by evidence. 11. Deletion of Addition on Account of Vehicle Running and Maintenance Expenses: The eleventh issue addressed the deletion of an addition of Rs. 2,84,193/- for vehicle expenses. The Tribunal upheld the CIT(A)'s decision, referencing precedents that a company's vehicle expenses cannot be considered for non-business purposes. 12. Deletion of Addition on Account of Telephone Expenses: The twelfth issue involved the deletion of an addition of Rs. 1,29,319/- for telephone expenses. The Tribunal upheld the CIT(A)'s decision, consistent with the reasoning applied to vehicle expenses. 13. Deletion of Addition on Account of Entertainment Expenses: The thirteenth issue addressed the deletion of an addition of 20% of entertainment expenses. The Tribunal upheld the CIT(A)'s decision, noting that the expenses were supported by evidence of business purpose. 14. Deletion of Addition on Account of Demurrage Charges: The fourteenth issue involved the deletion of an addition of Rs. 65,734/- for demurrage charges. The Tribunal upheld the CIT(A)'s decision, noting that the charges were excess freight and not penal in nature. 15. Deletion of Addition on Account of Sales and Business Promotion Expenses: The fifteenth issue addressed the deletion of an addition of Rs. 1,29,300/- for sales and business promotion expenses. The Tribunal upheld the CIT(A)'s decision, noting that the expenses were supported by evidence and related to business promotions. Conclusion: The Tribunal partly allowed the Revenue's appeal for statistical purposes and dismissed the assessee's cross-objection. The detailed analysis provided a comprehensive understanding of the issues and the Tribunal's rationale for its decisions.
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