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TMI Blog2013 (9) TMI 234X X X X Extracts X X X X X X X X Extracts X X X X ..... f Hon'ble Apex Court, we are of the view that the action of Assessing Officer in disallowing the expenses cannot be faulted - Decided in favour of Revenue. Disallowance of loss on trading - Held that:- It is seen that while deleting the addition, CIT(A) after considering the tax audit report has given a finding that the sale was not to a party which would attract the provisions of Section 40A(2)(a). He further noted that there is no material on record to prove that the sale was made at a price which was below the market rate. Before us, Revenue could not controvert the findings of CIT(A) by bringing any tangible material on record - Decided against Revenue. Disallowance on account of excess consumption of Hexene - Held that:- It is seen that while deleting the addition, CIT(A) has held that the facts in the present ground are identical to that AY 1995-96 and he relying on his orders for AY 1994-95 and 1995-96 deleted the addition. Before us, Assessee has submitted that it has maintained complete quantity records as per Central Excise laws and no defect has been found therein. Before us, Revenue could not controvert the findings of CIT(A) or the submissions made by Assessee by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RT, DELHI) - Decided in favour of Revenue. Rejection of books of accounts - Low yield and GP addition - Held that:- CIT(A) while deleting the addition has given a finding that AO was not justified in comparing the yield of AY 97-98 with the yield of AY 1995- 96 ignoring the fact that the yield of current year was better than that in the immediately preceding year. He has further held that the Assessee has maintained proper records of production and consumption in accordance with the excise regulations. He has further noted that during the search at Assessee's premises in 1999-2000 minor difference in stock was observed which was due to various explainable factors. He has further held that AO has not brought any material on record to dispute the correctness of books of accounts and further no evidence has been brought on record to substantiate the allegation of unrecorded sales. He thus by a well reasoned order deleted the addition. Before us, nothing has been brought on record by Revenue to controvert the findings of CIT(A) - Decided against Revenue. - ITA No.1077 & 721 /Ahd/2001 - - - Dated:- 17-5-2013 - G C Gupta and Anil Chaturvedi, JJ. For the Appellant : Shri D S Kal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purpose of deduction u/s 80HHC, (ii) not to exclude the amount of interest, lease income and miscellaneous income from the profit eligible for deduction u/s 80HHC 9. On the facts and in the circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the A.O. 10. It is therefore, prayed that the order of the Ld CIT(A) may kindly be set-aside and that of the A.O. be restored to that extent. 4. 1st ground is with respect to disallowance of foreign travelling expenses of Rs. 10,11,025/ :- Assessing Officer noticed that Assessee has incurred foreign travelling expenses of Rs. 10,11,025/-. Assessee was asked to submit the details of expenses. Since no details were furnished, Assessing Officer held that in the absence of details the expenses cannot be allowed. He accordingly disallowed the entire expenditure. Assessee carried the matter before CIT(A). CIT(A) deleted the addition for the reason that Assessee had demonstrated before him that the details sought by Assessing Officer were furnished before him. CIT(A) also noted that on identical facts in Assessee s own case for AY 1994-95 and AY 1995-96 he had deleted the addition. He thus followed his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nses incurred by the Assessee are towards the guest house. Hon'ble Apex Court in the case of Britannia Ind. (supra) has concluded that expenses towards rents, repairs, maintenance and depreciation of premises/accommodation used for the purposes of guest house were to be disallowed u/s 37(4). Respectfully following the decision of Hon'ble Apex Court, we are of the view that the action of Assessing Officer in disallowing the expenses cannot be faulted. We thus, uphold the disallowance. Thus, this ground of Revenue is allowed. 10. 3rd ground is with respect to disallowance of Rs. 2,13,322/- on account of loss on trading:- Assessing Officer noticed that Assessee has incurred loss of Rs. 2,13,322/- on account of sale to Shreeji Plasticizers, it sister concern. Assessing Officer disallowed the loss for the reason that Assessee had not submitted any proof of receipt of sales consideration and further Assessee did not submit details of the market rate of the item sold to sister concern. Aggrieved by the order of Assessing Officer, Assessee carried the matter before CIT(A). CIT(A) deleted the addition by holding as under: I have gone through the submission and find that even in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377 MT) as Assessee's own production of Iso-Octonol. To this he applied the average sales price of Rs. 19762/mt and worked out the total value of goods of Rs. 95,43,855/- as being the sales outside the books of accounts and added to the income. Aggrieved by the order of Assessing Officer, Assessee carried the matter before CIT(A). CIT(A) deleted the addition by holding as under: The next 2 grounds of appeal relate to the addition on account of excess consumption of raw-materials and excess consumption of the catalysts. The assessing officer has observed that the appellant's consumption of the raw-material haptene during the year under consideration has increased as compared to that of the immediately preceding year. The assessing officer further observed that had the consumption ratio of Haptene remained constant, the production of Iso-Octonol should have been more. The assessing officer, therefore, came to the conclusion that to that extent there is excess consumption, which led him to presume that the appellant has sold the said goods outside books of accounts and accordingly made the addition of Rs.96,43,855/-. On similar observations, the assessing officer also made the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied on the order of Assessing Officer whereas on the other hand the Ld. A.R. submitted that the Assessing Officer has not rejected the book results nor found any defect in the books. He further submitted that the Assessee has maintained complete quantity records as per Central Excise laws and no defect was found therein. He further submitted that Gross profit rate was better compared to earlier years. He thus supported the order of CIT(A). 17. We have heard the rival submissions and perused the material on record. It is seen that while deleting the addition, CIT(A) has held that the facts in the present ground are identical to that AY 1995-96 and he relying on his orders for AY 1994-95 and 1995-96 deleted the addition. Before us, Assessee has submitted that it has maintained complete quantity records as per Central Excise laws and no defect has been found therein. Before us, Revenue could not controvert the findings of CIT(A) or the submissions made by Assessee by bringing any tangible material on record. We, therefore, do not feel necessary to interfere with the order of CIT(A). Thus this ground of Revenue is dismissed. 18. 5th ground is with respect to addition of Rs. 86,87,3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comparable. The excess consumption would be less than 1.4 % of the total consumption of material which is normal in these type of industries and should be ignored. ii) The assessing officer has failed to point out any reasons for rejection of the books of accounts before going for estimation of the income. It was pointed out that detailed books of accounts including quantitative details thereof have been maintained by the appellant and, therefore, there is no reason for rejection of the same. : iii) There is increase in the rate of Gross Profit as compared to earlier years including the A.Y. 1993-94 with which the production figures have been compared. The appellant submitted that the rate of Gross Profit was 40.93 % for A. Y. 1993-94 which had gone up to 41.59 % in A.Y. 1995-96 and had further risen to 47.21 % in the year under consideration. This factor was totally ignored by the assessing officer. I have gone through the submissions made in this behalf. I find that the issue is clearly covered by my detailed order for A. Ys. 1994-95 and 1995-96 wherein it has been held by me inter alia that there is no justification for rejection of books and consequent addition. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch huge investments in non core area of competence. Further this was a solitary transaction by the Assessee. He thus concluded that the entire transaction to be a colourable device to reduce the incidence of taxation and therefore the depreciation claimed by the Assessee was not allowable. He made a net addition of Rs 6,48,92,150/-. Aggrieved -by the order of Assessing Officer, Assessee carried the matter before CIT(A). CIT(A) deleted the addition by holding as under: The appellant's counsel relied primarily in the decision of the Hon'ble ITAT, Anmedabad in the case of Unimed Technologies Ltd. Vs. Dy. CIT 73 ITD 150. It was submitted that the appellant's case is directly covered by the ratio of the said decision. It was further submitted that the facts of the appellant's case are absolutely identical with the said decision and, therefore, the claim he appellant company with respect to the depreciation should be allowed including the capitalisation of expenses thereon. The appellant summarised the argument by comparing the facts of the appellant's case with the case before the Hon'ble ITAT as under: i)The transaction is with Rajasthan State Electricity Board, a State Gov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is seen that the facts of the appellant's case are identical with those of above mentioned case which was decided by Hon'ble ITAT, Ahmedabad. In view of the same and following the decision of Hon'ble ITAT Ahmedabad in the case of Unimed Technologies Ltd. 73 ITD 150, I direct the assessing officer to grant the depreciation on the assets acquired by the appellant from the RSEB and also allow the depreciation on the expenditure incurred for the said transaction. 23. Aggrieved by the order of CIT(A), Revenue is now in appeal before us. 24. Before us, the Ld. D.R. relied on the order of Assessing Officer whereas on the other hand the Ld. A.R. supported the order of CIT(A). He further submitted that the issue is covered in its favour in view of the decision of Gujarat High Court in the case of CIT Vs Gujarat Gas Ltd. (2009) 308 ITR 243 (Guj). Both the parties however agreed that the issue needs to be examined in the light of the aforesaid decision of Gujarat High Court. 25. We have heard the rival submissions and perused the material on record. It is seen that the Assessing Officer has treated the entire transaction to be a device used to reduce the incidence of tax. However, he h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 182.69 lacs. The appellant's counsel submitted before me that the amount of interest earned is on account of the either the fixed deposits for getting the L/c. or on account delay in payment from the customers. It was submitted that these are inextricably attached to the business and therefore, should not be excluded. It was further submitted that the lease income is the trading income and, therefore, assessable as part of the business income. It was further submitted that effectively there is actually no income from the lease income and, therefore, if the amount is to be treated as non-business income, there would be increase in the claim and not a reduction thereof. It was, therefore, submitted that there is no justification for excluding the same also. After hearing the appellant s counsel and after going through the facts of the case, I agree with the contention of the appellant s and find that the interest and the lease income cannot be excluded from the total income computed for the purposes of deduction u/s 80 HHC of the I.T. Act. Therefore, I direct the assessing officer not to exclude the amount of interest and lease income and Misc. income from the eligible profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Equip. Ors (supra) while deciding the eligibility of deduction u/s 80HHC, it has been held that when interest income is treated as business income, the net interest is required to be reduced to work out the deduction u/s 80HHC. 33. As far as the inclusion of lease rent, interest etc is concerned we find that there is no finding by the Assessing Officer as to whether the same is business income or income from other sources. We, therefore, feel that this aspect needs to be examined by Assessing Officer in the light of the ratio of decision in the case ASG Capsules (supra) and CIT vs Sri Ram Honda Power (supra). We, therefore, direct accordingly and also direct the AO to grant to Assessee a reasonable opportunity of hearing. Thus, this ground is allowed for statistical purposes. ITA No 721: AY 1997-98: "D" appeal: 34. 1st ground is with respect to guest house expenses: 35. Before us both the parties submitted that the facts of this ground are identical to that of ground no. 2 of ITA No. 1077 for AY 1996-97 except for the change in figures and thus the submissions made by them are equally applicable to the present appeal and further they have no new submissions to make. 36 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmissions of Assessee deleted the addition by holding as under: The contentions of the appellant and Assessing Officer are considered. The decision of Supreme Court, various High Courts and Tribunals relied on by the appellant and Assessing Officer are perused. It is seen that substantial additions had been made in the appellant's case in A.Ys. 1994-95 to 1996-97 also on account of catalyst consumption and low yield. The appeals filed by the appellant in respect of these assessment years are pending with different C1T(A)C.I.T. (A)-I, Baroda). The assessment orders of the said years are perused. It is observed that in the assessment order the Assessing Officer has discussed the submission of the appellant very briefly. From the assessment records it is seen that during the assessment proceedings the appellant has given detailed explanations in respect of its' manufacturing activities and various queries raised by the Assessing Officer. The Assessing Officer has rejected the books of account maintained by the appellant mainly on the grounds that the (i) appellant has not maintained day-to-day consumption and production register from which consumption can be corelated with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly resulting into slightly more consumption of rawmaterial. But the net effect was increase in profitability. Thus, the-appellant has proper reasons for decline in yield in the current year as compared to A.Y. 1995-96. Regarding nonmaintenance of consumption and production records, it is observed from the details of records maintained by it as reproduced in para 19 above, the appellant has maintained proper records of consumption and production. According to the Assessing Officer, the appellant has not maintained consumption and production record but maintained records relating to entry of raw-material and exit of finished products due to which consumption of raw-material cannot be co-related with production. I find that this observation is not correct as the appellant has maintained proper consumption and production records and also in accordance with the records required to be maintained by the Excise Authorities. During the search at the appellant's factory premises and other premises in 1998 there was minor difference in book stock and physical stock which according to the-assessee arose mainly on account of errors in conversion, evaporation, wastage, spillage, temperature diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s finding that the appellant had not maintained proper consumption and production records is not correct. From the case records, I do not find any material which may raise doubt about the correctness or completeness of the books of account maintained by the appellant Thus, the Assessing Officer was not justified in rejecting the books of account u/s. 145(3) of the Act. It is further observed that both input and out put are governed by the Excise Authorities. The appellant cannot sell any goods manufactured by it unless it is cleared by the Excise Authorities and entries are recorded in the prescribed registers. The excise records do not show any unaccounted sale of goods by the appellant and therefore, it cannot be said that the appellant has made any sale other than recorded in the registers unless the Assessing Officer brings out material/evidence in respect of such unaccounted sale. There is no material /evidence on record to show that the appellant has made any unaccounted sales. Besides, no evidence was found even during the search in subsequent year to show unaccounted sale of goods by the appellant. On such facts, the Assessing Officer cannot reject the books of account and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost has been worked out at Rs.8,807/- PMT. During the hearing before me, the Assessing Officer contended that the average cost of production by the appellant in respect of job work comes out to Rs.20,974/- PMT against which the appellant by it's own working has shown charging of job work at the average rate of Rs.19,150/- PMT, thus incurring loss. It is observed that the said figures has been taken by the Assessing Officer on the basis of statement submitted by the appellant for the purpose of valuation of closing stock of finished goods. From the said statement, it is noted that the cost of finished at Rs.36744/- shown by the appellant is the cost by taking into account all the expenses of Profit Loss A/c. including depreciation and the said figure was arrived after excluding only net profit. The said cost of production is not correct as it takes into account financial and other costs which are not applicable to the job work. In my view, the appellant's working of cost of production at Rs. 10,826/- PMT is correct against which the appellant has charged at the average rate of Rs. 19,150/- PMT. Therefore, no adverse view can be taken against the appellant in respect of job work c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Chairman-cum-Managing Director of the company. Assessing Officer was of the view that the remuneration was excessive in view of the fact that the remuneration was more than 10 times that was paid to the president of the company, Mr. Mehul Bhuva was also the Managing Director of another company situated abroad. Thus, according to the Assessing Officer the remuneration of Rs. 40,000/- p.m. (Rs 4.80 lacs p.a.) would have been most appropriate and accordingly he disallowed the excessive payment of Rs. 25,20,000/- u/s 40A(2) and added to the income. Assessee carried the matter before CIT(A). CIT(A) after considering the submissions of the Assessee deleted the addition by holding as under: The contentions of the appellant are considered. It is observed that the entire salary of Rs. 30 lakhs has been taxed in the hands of Shri bhutra at masimum rate. It is seen that the appointment of Shri Bhuva with remuneration of Rs.30 lakhs was passed in the Annual General Meeting and was approved by the Board of Directors. The Company Law Board has also after examining various terms conditions and also the remuneration proposed to give Shri Mehool N. Bhuva, approved his appointment. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer worked out proportionate interest @ 18% amounting to Rs. 11.96,100/- and disallowed the same. Assessee carried the matter before CIT(A). CIT(A) after considering the submissions of the Assessee deleted the disallowance by holding as under: The contentions of the appellant are considered. It is observed that Assessing Officer has disallowed interest on the reasoning that the said cash shown in the cash book does not exist and was used for non-business purposes. It is observed that there is no evidence/material before the Assessing Officer to make such presumptions. Though, it is not normal to have such huge cash balance and the appellant has not given satisfactory reasons for the same yet it cannot be presumed that the said money was not available to the appellant or the said cash was used for nonbusiness purposes. I agree to the alternative contention of the appellant that it has interest free funds of Rs.30 crores available to it and the said cash balance can be treated as part of the said funds. In that case, even if the money is not used for the purpose of business, no disallowance can be made. Therefore, on both reasonings, the Assessing Officer is not justifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ural, Baroda. In order to know the genuineness of the transactions, the Assessing Officer issued summons to the said parties which could not be served as the party at Mumbai was not traceable and the party at Baroda did not reply. The Assessing Officer show cause notice and the appellant's explanations has been discussed by the Assessing Officer in para-11 of the assessment order. The assessee submitted to the Assessing Officer that the advances were given to the said parties for construction of the storage tank. Further, as the storage tanks were not needed by the assessee due to the change in business plan and for other reasons the said tanks could not be purchased. The parties refused to refund the money as the storage tanks were already constructed by them. The appellant submitted that since the amount was advanced for the business purpose, no disallowance could be made for the interest attributable to the advances. The assessee has advanced alternative contention that it has huge amount of Rs.32 crore and therefore, it cannot be said that assessee has diverted interest bearing fund towards granting advance to the said parties. The Assessing Officer did not accept the explanati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed. C.O. 152/Ahd/2013 (A.Y.: 1996-97) 57. The grounds raised in CO reads as under:- 1. The learned Commissioner of Income Tax (Appeals) has erred in fact and in law by confirming the disallowance of part of the deduction u/s. 35D of the Income Tax Act, 1961 amounting to Rs.2,35,148. 2. The learned Commissioner of Income Tax (Appeals) has erred in fact and in law by confirming the disallowance of Rs.12,75,000 on account of expenses incurred for increasing authorized share capital. 3. The learned Commissioner of Income Tax (Appeals) has erred in fact and in law by confirming the action of the AO in not allowing deduction u/s. 80 IA of the income Tax Act, 1961. 4. Your respondent craves right to add to or alter, amend, substitute, delete or withdraw all or any of the above grounds cross objection. 58. Grounds no. 1 and 2 were not pressed, therefore, the same is dismissed as not pressed. 59. Ground no.3 is with respect to deduction u/s 80 IA:- During the course of assessment proceedings AO noticed that Assessee had claimed deduction u/s 80 IA in respect of expansion carried out in 1990-91. The AO disallowed the claim of Assessee by holding as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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