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TMI Blog2010 (12) TMI 581X X X X Extracts X X X X X X X X Extracts X X X X ..... d in his claim - Decided in favour of assessee. Disallowance u/s. 40A(2)(b) - the assesse pointed out, that both the related enterprises are in the highest tax brackets and even it is assumed that the market price is unreasonable or excessive, such transaction will be entirely tax neutral – Hence, there is lesser motive for manipulating price on which related organisations entered into transactions -Ffind it difficult to approve the disallowance sustained by the CIT (A) because not only that the authorities below are completely disregarded the quality aspect but also,any variation in transaction price on the given facts is tax neutral and, therefore, there is no good reason to do so – Thus, direct the AO to delete the disallowance. Disallowance u/s.14A - The disallowance @ 10% for the proportionate management expenditure indeed appears to be excessive inasmuch as no reasons have been assigned by any of the authorities below to demonstrate any direct expenses incurred for earning the dividend income or to demonstrate that such a higher percentage of overall expenditure can indeed be attributed to the activities relating to earning of dividend income-particularly it is not even t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... department in the earlier years. This claim is without prejudice to the claim of the appellant that expenditure in the year in which it is incurred. 4. The ld. CIT (A) was not justified in not allowing a deduction of Rs. 25,84,492/- in respect of least rentals in line with the stand taken by the Department in the earlier years. This claim is without prejudice to the claim made by the appellant in respect of lease rentals in the earlier years." 7. Learned representative fairly submits that these grievances do not survive any longer because these are in the nature of alternative claims and the original claim of the assessee has been upheld by the CIT (A). He, however, submits that since the matter has not reached finality inasmuch as the issue has traveled in appeal before the higher forum, it is necessary to keep the grievance alive as a measure of abundant caution. In view of the facts submitted by the learned counsel for the assessee, the grievances so raised above must be dismissed as infructuous at this stage. We do so. 8. Ground No. 3 and 4 are thus dismissed as infructuous. 9. In Ground No. 5 and 6 which are inter-linked, the assessee has raised the following g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preceding year and not the present year, the same cannot be allowed in the current year on the receipt of bills or making of the payment. If the prior period expenses are allowed in the subsequent year, the very concept of the mercantile system of accounting will stand abrogated. We, therefore, hold that the assessee has been rightly denied the benefit of deduction of Rs. 21.03 lakhs representing prior period expenses. Similar view has been taken by the Jodhpur Bench of the Tribunal in the case of Aravali Minerals and chemicals Industries (P) Ltd. v ACIT (2007) 108 ITD 163 (Jodh) to which one of us (namely the AM) is party. Ground No.7 is thus not allowed. Insofar as Ground No.8 is concerned we find merit in allowing deduction for the reason that in the succeeding year the same amount was disallowed as relatable to the instant year. Since the proceedings for the instant year are continuing in the form of the present appeals, in our considered opinion the assessee deserves deduction of Rs. 6.92 lakhs. Ground No.8 is, therefore, allowed." Respectfully following the views so articulated by our esteemed collogues, we dismiss Ground No.5 and allow Ground No.6 as the observations mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to Ground No.1 above." 21. Ground No.1 and Ground No.2 are same as Ground No.5 and 6 taken in the assessment year 2002-03 above. In line with our decision, in para 10 above, Ground No.1 is dismissed and Ground No.2 is allowed. 22. In Ground No.3, the assessee has raised the following grievance:- "The ld CIT (A) was not justified in not allowing a deduction of Rs. 25,84,492/- in respect of least rentals in line with the stand taken by the Department in the earlier years. This claim is without prejudice to the claim made by the appellant in respect of lease rentals in the earlier years." 23. Ground No.3 is similar to Ground No.4 taken in the assessment year 2002-03 above. In line with our decision in para 7 above, Ground No.3 is dismissed as infructuous. 24. In Ground No.4, the assessee has raised the following grievance:- "The ld. CIT (A) was not justified in not allowing a deduction of Rs. 1.03.39,014/- in respect of expenditure on catalysts, in line with the stand taken by the department in the earlier years. This claim is without prejudice to the claim of the appellant in respect of lease rentals in the earlier years. 25. Ground No.4 is similar to Gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounts have actually become bad, the assesse must succeed in his claim. The ground on which the deduction has been declined, in view of the Hon'ble Supreme Court judgement in the case of TRF Ltd (supra) is no longer sustainable in law. We, therefore, uphold the grievance of the assessee and direct the Assessing Officer to delete the impugned disallowance. 30. Ground No.5 is thus allowed. 31. In Ground No.6, the assesse has raised the following grievance:- "The ld CIT(A) was not justified in confirming the disallowance of Rs.7,98,673/- u/s. 40A(2)(b)." 32. This grievance is set out in a narrow compass of undisputed facts. During the course of assessment proceedings, it was noted by the Assessing Officer that the assesse company had purchased certain packing material from its sister concern i.e. Narashima Plastics. When the assesse was required to demonstrate that the expenditure so incurred on purchases made from Narashima Plastics is at fair market value, the assesse submitted details of similar purchase from one M/s. Vigro Polymers. The assesse accepted that the amount paid to Narashima Plastics is Rs.7,98,763/-, which is more than similar purchase from M/s. Vigr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed enterprises are in the highest tax brackets and even it is assumed that the market price is unreasonable or excessive, such transaction will be entirely tax neutral. Under such circumstances, there is lesser motive for manipulating price on which related organisations entered into transactions. While we take into account all these facts in entirety, we find it difficult to approve the disallowance sustained by the CIT (A) because not only that the authorities below are completely disregarded the quality aspect but also, as we have noted above, any variation in transaction price on the given facts is tax neutral and, therefore, there is no good reason to do so. In view of these discussions and bearing in mind the entirety of the case, we direct the AO to delete the disallowance. The assesse gets relief accordingly. 34. Ground No.6 is thus allowed. 35. In Ground No.7, the assesse has raised the following grievance: "The ld CIT (A) was not justified in presuming that an estimated 10% of dividend had been incurred in earning the same. Accordingly, he has erred in disallowing an amount of Rs.3,12,953/- u/s.14A." 36. So far as this grievance is concerned, it is suffici ..... X X X X Extracts X X X X X X X X Extracts X X X X
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