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2020 (1) TMI 216 - AT - Income TaxDisallowance for rent expenditure and society maintenance charges paid to Mrs. Chitra Agarwal by invoking provisions of Section 37 as well as Section 40A(2)(b) - HELD THAT - AR placed on record the copy of the assessment orders in assessee s own case for A.Yrs 2006-07 to 2010-11 passed u/s.143(3) of the Act on various dates wherein similar payments of rent and society maintenance charges were made by the assessee to the persons specified u/s. 40A(2)(b) of the Act. We find that no disallowance was made by the ld. AO in any of the above mentioned assessment orders in respect of the subject mentioned payments either u/s.37 or u/s. 40A(2)(b). Both the parties agreed that there is no change in the facts and circumstances of the case with regard to the subject mentioned issue during the year under consideration. Hence, there is no need for the revenue to take a divergent stand during this year alone. Following the principle of consistency as approved by the decision in the case of Radhasaomi Satsang vs CIT 1991 (11) TMI 2 - SUPREME COURT we direct the ld. AO to delete the disallowance made on account of rent payment and society maintenance charges. Accordingly, the ground Nos.1 2 raised by the assessee are allowed. Determination of net profit of Bhilai Unit by adopting 5% of turnover thereon - HELD THAT - We find that the ld. AR fairly stated that he is agreeable for adoption of 5% net profit in respect of its Bhilai Unit and hence, this ground raised by the assessee is dismissed. Disallowance u/s.14A - HELD THAT - We find that the law is now very well settled that the disallowance u/s.14A of the Act should be restricted only to the extent of exempt income. Reliance in this regard is placed on the decision of Hon ble Delhi High Court in the case of Joint Investment Pvt. Ltd. 2015 (3) TMI 155 - DELHI HIGH COURT . We direct the ld. AO to restrict the disallowance only to the extent of ₹ 1,575/- being the exempt income. Disallowance of foreign expenses - HELD THAT - CIT(A) after verifying the Board resolution and appreciating the fact that turnover has substantially increased during the year under consideration pursuant to the said foreign visits observed that assessee had duly established the business nexus thereon and accordingly, deleted the disallowance made by the ld. AO. It is not in dispute that Soya DOC Hypro was a new variety of DE oiled cake developed specially for the European market by the assessee and the same has been launched for the first time during the F.Y.2009-10. Hence, this product required to be promoted in the European market for which the Directors of the assessee company had visited the relevant foreign country. It is also not in dispute that the turnover has substantially increased from ₹ 44.50 Crores to ₹ 126.15 Crores during the year as compared to the earlier year. This goes to prove that the benefits derived by the assessee pursuant to such foreign receipts by its Directors stands established by the business nexus. Hence, we do not find any infirmity in the action of the ld. CIT(A) granting relief to the assessee Special Audit report u/s.142(2A) - Disallowance of rate difference through debit note received from Mauria Merchandise division of Mauria Udyog Limited (MUL) - profit and loss account of trading in DE Oiled Cake (DOC) with MUL and others - Justification of expenses - HELD THAT - We find that the entire modus operandi on DOC trading has been elaborated in para 5.2.2. of the order of the ld. CIT(A) as submitted by the assessee thereon. The rates for DOC trading have been determined by SOPA (Soyabean Processors Association of India) a non-profit organization, which is dedicated to the progress and welfare of the soya sector. We also find that the ld. CIT(A) in para 5.3 of his order had explained the manufacturing process of crushing of soya seeds and way in which the resultant by- product i.e. DOC is traded within the available time gap of three weeks which is also capable of raising finance to the assessee. The ld. CIT(A) had given a categorical finding that crushing of soya seeds and trading of DOC are independent twin businesses. With regard to comments made by the Special Auditor, the ld. AR stated that the rates were indeed available in SOPA for the DOC trading but the Special Auditor was not willing to verify the same and accordingly, he was non-committal in his Special Audit Report regarding the same. In the instant case, we find that the ld. CIT(A) should have asked for a remand report from the ld. AO so that the ld. AO could have understood the business model and the Modus Operandi of DOC trading business of the assessee and the said goods being available as security for earning finance for the assessee within a time gap of three weeks. Since the ld. CIT(A) had not asked for a remand report or not given proper opportunity for the ld. AO to understand the entire facts of the case, we find that the principles of natural justice have been grossly violated in the instant case. Hence, we deem it fit and appropriate, in the interest of justice and fair play, to remand this issue to the file of the ld. AO for denovo adjudication in accordance with law. The assessee is at liberty to furnish further evidences, if any, in support of its contentions. Accordingly, the ground No.1 raised by the revenue is allowed for statistical purposes.
Issues Involved:
1. Disallowance of rent expenditure and society maintenance charges. 2. Determination of net profit of Bhilai Unit. 3. Disallowance made under Section 40A(2)(b) of the Income Tax Act. 4. Disallowance under Section 14A of the Income Tax Act. 5. Deletion of disallowance of salary paid to specific individuals. 6. Deletion of addition made on account of disallowance of interest expenses, raw material purchases, and VAT reimbursement. 7. Deletion of addition made on account of disallowance of foreign expenses. 8. Deletion of addition made on account of disallowance of rate difference. Issue-wise Detailed Analysis: 1. Disallowance of Rent Expenditure and Society Maintenance Charges: The assessee challenged the confirmation of disallowance for rent expenditure and society maintenance charges paid to Mrs. Chitra Agarwal. The Tribunal found that similar payments in earlier years were not disallowed by the Assessing Officer (AO) and there was no change in facts and circumstances for the current year. Following the principle of consistency from the Supreme Court decision in Radhasaomi Satsang vs CIT, the Tribunal directed the AO to delete the disallowance. 2. Determination of Net Profit of Bhilai Unit: The assessee agreed to the adoption of 5% net profit for the Bhilai Unit. Consequently, this ground was dismissed by the Tribunal. 3. Disallowance Made Under Section 40A(2)(b) of the Income Tax Act: The assessee challenged the disallowance in respect of the Bhilai Unit. Since the net profit of the Bhilai Unit was determined at 5%, the Tribunal held that no further disallowance or addition towards business expenditure or income was warranted. This ground was allowed. 4. Disallowance Under Section 14A of the Income Tax Act: The assessee had earned exempt income and voluntarily disallowed a sum under Section 14A. The AO applied Rule 8D(2) and made an additional disallowance. The Tribunal held that disallowance should be restricted to the extent of exempt income, following the Delhi High Court decision in Joint Investment Pvt. Ltd. Consequently, the Tribunal directed the AO to restrict the disallowance to the exempt income amount. 5. Deletion of Disallowance of Salary Paid to Specific Individuals: The revenue challenged the deletion of disallowance of salary paid to Mr. Sandeep Agarwal and Mrs. Chitra Agarwal. The Tribunal found that similar payments in earlier years were not disallowed by the AO. Following the principle of consistency, the Tribunal directed the AO to delete the disallowance. 6. Deletion of Addition Made on Account of Disallowance of Interest Expenses, Raw Material Purchases, and VAT Reimbursement: The revenue challenged the deletion of these additions for the Bhilai Unit. The Tribunal held that once net profit is estimated as a percentage of turnover, no further addition towards regular business expenditure is warranted. This ground was dismissed. 7. Deletion of Addition Made on Account of Disallowance of Foreign Expenses: The revenue challenged the deletion of disallowance of foreign expenses. The Tribunal found that the foreign trips were undertaken for business purposes, as evidenced by board resolutions and increased turnover. The Tribunal upheld the CIT(A)'s decision to delete the disallowance. 8. Deletion of Addition Made on Account of Disallowance of Rate Difference: The revenue challenged the deletion of addition of rate difference. The Tribunal found that the AO had confused the crushing of soya seeds with the trading of DOC. The Tribunal held that the debit note arose from trading transactions of DOC and not from the crushing of soya seeds. The Tribunal also found the AO's alternative ground of invoking Section 40(a)(ia) as unsustainable. However, the Tribunal noted that the CIT(A) should have sought a remand report from the AO to understand the business model better. Consequently, the Tribunal remanded the issue to the AO for denovo adjudication. Summary of Judgments: - ITA No. 1631/Mum/2016 (Assessee, A.Y. 2011-12): Partly Allowed. - ITA No. 2674/Mum/2016 (Revenue, A.Y. 2011-12): Partly Allowed for statistical purposes. - ITA No. 1731/Mum/2017 (Assessee, A.Y. 2012-13): Partly Allowed.
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