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TMI Blog2012 (11) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... unt. Law after 1st April, 1989, the assessee has to establish that debt was written off in the books of account not necessary to establish that in fact had become irrecoverable u/s 36(1)(vii) of I.T.A Act - customer loss in all three years are allowed subject to verify from the assessment record of M/s Himson Overseas Pvt. Ltd. that no deduction of same amount has been allowed by its A.O Disallowances of 50% of erection expenses - expenses have gone up whereas turnover has gone down - work was completed by the sister concern Held that:- A.O. had not brought on record any material for excessive payment u/s 40A(2)(b) of the Act made to M/s Himson Techno Services Pvt. Ltd. The A.O. had disallowed lump-sum expenses on estimate basis. These payments were for erection and technical work. The comparable rates were not available being an engineering work - addition deleted Addition u/s 41(1) of the I.T. Act - Addition on account of cessation of liability alleged that the assessee had shown creditor of Rs.37,25,695/- more than three years Held that:- A.O. has not brought on record any evidence that the liability had been obtained by the assessee by way of remission or cessation. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neries-Rs.4,18,520/- (ii) On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition on account of estimation of gross profit Rs.2,80,93,222/-. (iii) On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition on account of adjustment u/s 145A of the Act Rs.3,24,70,328/-. (iv) On the facts and circumstances of the case and in law the ld. CIT(A) has erred in deleting the addition on account of disallowance of customer loss Rs.2,12,37,000/-. 4. I.T.A. No.2217 of 2008 Effective grounds of appeal are as under: (Assessment Year 2005-06) (i) Disallowance of depreciation Rs.323892/-. On the facts and in the circumstances of the case, the ld. Commissioner of Income Tax (A's) erred in restricting depreciation by Rs.323892/- because of change in opening WDV. (ii) Late payment of PF and ESI Rs.29378/-. On the facts and in the circumstances of the case, ld. Commissioner of Income Tax (A's) erred in confirming disallowance towards PF and ESI payment Rs.29378/-. (iii) Addition u/s 40(a) Rs.3622957/. On the facts and in the circumstances of the case, ld. Commissioner of Income Tax (A's) erred in con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firming the action of the A.O. for not allowing technical know how fees of Rs.1336817/- which was allowed in a phased manner from A.Y.2003-04 onwards. 7. I.T.A. No.1595 of 2009 Effective grounds of appeal are as under: (Assessment Year 2006-07) (i) On the facts and in the circumstances of the case and in law, the ld. CIT(A)-1, Surat has erred in deleting G.P. addition of Rs.4,85,68,724/-. (ii) On the facts and in the circumstances of the case and in law, the ld. CIT(A)-1, Surat has erred in deleting the addition of Rs.6,17,466/- made on account of customer claim loss. 8. I.T.A. No.714 of 2010 Effective grounds of appeal are as under: (Assessment Year 2007-08) (i) On the facts and on the circumstances of the case and in law, the ld. CIT(A), Surat has erred in confirming the action of the A.O. by reducing subsidy of Rs.150878/- for the purpose of allowance of depreciation. (ii) On the facts and on the circumstances of the case and in law, the ld. CIT(A), Surat has erred in confirming the action of the A.O. for adjustment u/s 145-A partly to the tune of Rs.12986/-. (iii) On the facts and on the circumstances of the case and in law, the ld. CIT(A), Surat has erred in confirmin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.1336817/- towards technical know-how as per decision of Hon'ble ITAT. 11. I.T.A. No.2569 of 2010 Effective ground of appeal is as under: (Assessment Year 2008-09) (i) On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting addition of Rs.1,16,38,333/- made on account of adjustment u/s 145A of the Act. 12. The common ground of appeal against subsidy received is raised by the both sides. The ld. DR submitted that the issue has been confirmed in favour of the revenue with the decision of ITAT in assessee's own case for A.Y. 2003-04. The ld. Counsel for the assessee has fairly conceded the issue in favour of the revenue. Accordingly, this ground of appeal is decided in favour of revenue and dismissed against the assessee in all the years. 13. The second ground of A.Y. 2004-05, first ground of A.Y. 2005-06, A.Y. 2006-07 and A.Y. 2007-08 of the revenue is against deletion of G.P. addition. 14. One general ground of revenue appeal is against deleting of G.P. addition of Rs.4,18,520/- in A.Y. 2004-05, Rs.1,84,86,860/- in A.Y. 2005-064,85,68,724/- in A.Y. 2006-07 and Rs.2,47,68,810/- in A.Y. 2007-08 by the CIT(A). 14.1 The A.O. had discussed hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould be possible. The A.O. has also stated that if it is not so then the books of accounts can be rejected in view of the decision of Hon'ble Allahabad High Court in the case of Avdhesh Pratapsingh Abdul Rahman & Brothers (supra) and in the case of Hari Shankar Gopal Hari (supra) wherein the Hon'ble High Court stated that the absence of stock register and cash memo in a given situation may not per se lead to any inference that the accounts are false or incomplete. However, where the absence of stock register, cash memos etc. is coupled with other factors such as that the vouchers in support of the expenses and purchases are not forthcoming and the profits are low it may give rise to an inference that all is not well with the books and same cannot be relied upon to assess the income of the assessee. In the present case the G.P. rate of the assessee is 14.43% which is more than the last year's G.P. rate of 12.58%. Hence, the profits in the current year are not lower than the profits of last year. The A.O. has brought nothing on record to show that the vouchers in support of expenses and purchases were not filed. In the present case no details has been given by the AO as to which of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve record by itself would not be enough for rejecting the books of accounts because the GP rate of current year at 14.43% is higher than the GP rate of last year of 12.58%. The assessment for A.Y. 2003-04 was made u/s 143(3) by the AO vide his order dated 24.03.06 in which the GP rate of 12.58% was accepted and no GP addition was made. Hence there is no reason for making this addition. This ground of appeal is allowed and the GP addition is deleted." 15.1 More or less, similar findings were given in A.Y. 2005-06, 2006-07 and 2007-08 and additions were deleted by the CIT(A). 16. The ld. DR before us argued for A.Y.2004-05 that the assessee company had disclosed GP @ 14.43% as against GP @ 12.5% in immediate preceding year by applying the average GP rate @ 15.71% which is average of previous to previous year and next year. The assessee had not filed complete details of opening stock and closing stock and had not maintained day-to-day quantity detail of raw material. The major payment to the sister companies who have incurred losses. The notice u/s 133(6) were issued in number of cases and in some of the cases reply were not received from them and also there was a difference in acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but no comment was made by the A.O. in his remand report. No specific payments to the sister concerned were excessive as claimed by the A.O. Non-maintenance of the quantitative record was not enough for rejection of books of account when G.P. was higher than immediate preceding year. Thus, the order of the CIT(A) is confirmed and revenue appeal is dismissed for A.Y. 2004-05. 18.1 The CIT(A) also deleted the addition in A.Y. 2005-06 and in A.Y. 2006-07 on similar findings but G.P. rate in these years were less marginally by 1.64%, 3.73% respectively compared to immediate preceding years which have been explained before the A.O. by the assessee with specific reasons. Therefore, the orders of the CIT(A) are confirmed on the basis of finding given in para 18 of this order. The revenue appeals are dismissed accordingly. 19. The third ground in A.Y. 2004-05 and second ground in A.Y. 2007-08 and first ground in A.Y. 2008-09 is against adjustment on account of MODVET credit u/s 145A of the I.T. Act. The A.O. himself admitted in remand report the difference in addition to inclusive of excise duty in A.Y. 2004-05 at Rs.970/- and Rs.12,986/- in A.Y. 2007-08 which have been confirmed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these parties as stated in the above table. The assessee has stated that in respect of Sin Fab Sales the sale was made in the earlier year on 1.6.03. The machine was valued at Rs.15 lacs. The assessee claimed Rs.1,65,000/- as loss which was due to the problem on primary heater. The assessee made the payment by cheque on 11.3.04 and since the amount was settled this year, this loss is allowable u/s 37 in the current year. In respect of Yashasvi Yarns Ltd. the assessee has stated that a machine worth Rs.20,64,000/- was sold to this party on 11.7.03 but due to defective yarn produced this party claimed la loss of Rs.1,80,000/- which the assessee had to pay by cheque dated 19.3.04. Hence, this loss is also allowable u/s 37 being business loss. With respect to Siddhi Vinayak Filaments the assessee has stated that a machine worth Rs.82,00,000/- was sold on 11.12.03 and 27.2.04 to this party due to the production loss. This party claimed a loss of Rs.5,75,000/- which was paid by cheque dated 25.8.04. The assessee has stated that all the three payments were made in the course of business for keeping the business relations. The amounts were settled and the payments were made as stated abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various types of textile machines sold throughout the country. Turnover earlier was Rs.250 crores. With competition it has gradually dwindled. Assessee is required to not only supply but erect the machinery. These are complex and mostly customized machines. Bad debts take place partly because buyer's financial condition is bad but mainly because there are complaints about some machines and their functioning and consequently amount is not paid on receipt of complaints the assessee does send technicians on site and sometimes customer gets satisfied and sometimes he does not get satisfied. He also relied on TRF Ltd. (323) ITR 397 on attempt made to recovery and all debits indisputably related to sale made. 25. We have perused the assessment order, CIT(A) order, submission of the assessee, paper book and heard argument of both sides. The assessee has shown this sale transaction in income in earlier year or in current year as per Section 36(2) of the I.T. Act. The A.O. has not doubted the claim of the assessee and had not stated that these claims are bogus. The claim has been written off in the books of account. Law after 1st April, 1989, the assessee has to establish that debt was wri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e than three years. As per his finding the assessee had not able to establish the reasons that still these creditors are payable. He made addition of Rs.37,25,695/- u/s 41(1) of the I.T. Act. 30. The ld CIT(A) has deleted the addition by observing as under:- "I have considered the submission made by the appellant and observation of the A.O. Admittedly all these creditors are old creditors and hence if the creditors are bogus they can only be added in the year in which they arose. The appellant has filed confirmation of its sister concern which total up to Rs.36,03,042/- out of Rs.37,25,695/-. Hence these are proved as subsisting liability. Further the addition cannot be made u/s 41(1) because the appellant has been showing these liabilities in the balance sheet. They have not been written off and hence in view of the decision of Hon'ble Gujarat High Court in the case of Ambica Mills Ltd. [54 ITR 167] the addition cannot be made u/s 41(1). In this case the High Court stated that no addition can be made if unclaimed liability was shown as subsisting debt in the annual balance sheet. In view of the above it is clear that the addition made by the A.O. cannot be sustained and the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TDS late, therefore, he disallowed Rs.1,29,51,109/-. 37. The CIT(A) partly allowed the appeal on this ground by observing as under:- "7.3 I have considered the submission made by the appellant and observation of the A.O. Since the payment of Rs.93,28,152/- has been made and TDS deducted in March, 2005, therefore, the amendment made by the Finance Act, 2008 as mentioned above clearly applies. The AO himself has stated the fact of deduction in TDS in March, 2005 in the table prepared by him in the assessment order. Therefore, the payment of Rs.93,28,152/- is clearly allowable in the current year. The balance payment out of disallowance of Rs.1,29,51,109/- is hit by the provision of section 40(a)(ia) as the TDS has been paid late and not within the financial year. As regards the allowability of the same in the next A.Y. will be examined by the A.O. in the next year and no direction can be given in the current year as this issue does not arise from the Assessment Order under appeal. Hence, the disallowance of Rs.1,29,51,109/- is reduced to Rs.36,22,957/- after deleting the sum of Rs.93,28,152/-. Hence, the assessee gets a relief of Rs.93,28,152/-. This ground of appeal is therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of both sides. The A.O. had disallowed reasonable expenditure u/s 14A of the I.T. Act. Therefore, we do not intervene in the findings of the A.O. for all the years. Thus, these grounds of appeals are dismissed in all the year. 43. Ground No.4 in A.Y. 2006-07 and in A.Y. 2008-09 and ground No.6 in A.Y. 2007-08 are against not directing the A.O. to reduce the technical know how expenses as per the direction of the Hon'ble ITAT in A.Y. 2003-04. The A.O. had not given any finding in all the assessment years on this issue even then it was claimed before the A.O. during the course of assessment proceeding. The CIT(A) observed that this issue has not been emanating from the orders under appeal, so, the assessee should apply to the A.O. u/s 154 of the I.T. Act and also appeal effect order of ITAT for A.Y. 2003-04 and dismiss the appeal for all the years. 44. Before us the ld. AR for the assessee drew our attention to the order of the ITAT for A.Y. 2003-04 on this issue and claimed that 1/6 deduction had been allowed by the Hon'ble ITAT every year on account of expenses of technical know-how. The ld. DR fairly conceded this issue in favour of assessee. Thus, the A.O. is directed to al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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