9911796707
TMI Blog2013 (9) TMI 373X X X X Extracts X X X X X X X X Extracts X X X X ..... the wages in proportion to production for A.Y. 2008-09 was Rs.0.7265 per kg. whereas for the year under appeal it was Rs. 0.7297 per kg which is more or less comparable. The Assessee has further stated that the PF was deducted in the cases where it was applicable. Before us, the Revenue could not point out any instance where though the Assessee was required to deduct PF but the same was not deducted. Further the Revenue could not controvert the calculation of wages with respect to the production as submitted by the Assessee. - deduction allowed - Decided against Revenue. Disallowance of packing expenses - Held that:- The non production of details is surprising more so in the light of the fact that Assessee could obtain the tax Audit report of CPC Trading for year ended 31.03.2009. Further just confirming the transaction without any supporting evidence cannot be said to discharging of onus by the supplier. It is also a fact that in the line of business of the Assessee packing material would have been used by the Assessee for supply of goods. - some addition needs to be made in the present case to meet the ends of justice. We therefore feel that a lump sum disallowance of Rs. 25 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the business of manufacturing of Texturised Yarn and Dyed Yarn. Assessee filed its return of income for A.Y. 2009-10 on 30.09.2009 declaring total income of Rs. 32,22,150/-. The case was selected for scrutiny and thereafter assessment was framed under Section 143(3) vide order dated 02.12.2011 and the total income was determined at Rs. 2,99,64,052/-. Aggrieved by the order of CIT(A). Assessee carried the matter before CIT(A). CIT(A) vide order dated 18.07.2012 partly allowed the appeal of the assessee. Aggrieved by the order of CIT(A) the Revenue is now in appeal before us and has raised the following grounds:- 1. On the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.47,17,670/- made on account of disallowance u/s 2(22)(e) inspite of the fact that the balance sheets of both the companies shows that the loan was received by the assessee company, so it was naturally falling within the preview of Deemed Dividend u/s 2(22)(e). 2. On the facts and circumstance of the case and in law, the Ld. CIT(A) has erred by deleting the addition of Rs.35,77,706/- made on account of disallowance of wages @25% even though the assessee faile ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction, the same should not be treated as deemed dividend. The submissions of the Assessee was not found acceptable to the Assessing Officer for the reason that the Assessee had received loan from the company, Assessee was owning equity share capital for more than 10% of KDPMPL and KDPMPL was also having reserves and surplus. According to the Assessing Officer, all the conditions required for applying deemed dividend was fully satisfied and accordingly he made addition of Rs. 47,17,670/- (being lower of reserves and surplus of KDMPL and the amount of loan receipt of Rs. 4,92,24,000/-). Aggrieved by the action of Assessing Officer, Assessee carried the matter before CIT(A). CIT(A) after considering the submissions made by the Assessee deleted the addition by holding as under: 7.1 In the present case of the appellant, the following undisputed facts have been noticed :-. 1. The appellant hasj a Current running account of M/s Kejriwal Dyg Ptg Mills Pvt Ltd ( KDPMPL) in its books. 2. In the books of accounts of appellant, there is opening debitbalance in the said account of Rs 1.48Crores. 3. The credit balance appears for the first time on 16.10.2008 and continues till 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of CIT(A) the Revenue is now in appeal before us. 5. Before us, the learned D.R. submitted that for the purpose of considering deemed dividend under Section 2(22)(e), the necessary conditions are that the Assessee should have received loan from a company in which it was holding moved 10% of capital and the company from whom the loan was received has reserves and surplus. In the present case, all the conditions stipulated in the section are satisfied and therefore, the Assessing Officer was fully justified in making addition of deemed dividend. The learned D.R. further submitted that before Assessing Officer, no evidence was submitted with respect to the mortgage of Assessee's property as security for grant of loan by bank to KDPMPL. He further submitted that once the loan has been received and even though it has been repaid subsequently the amount continues has to be treated as deemed dividend. He thus submitted that CIT(A) has erred in deleting the addition made by the Assessing Officer. 6. The learned A.R. on the other hand submitted that KDPMPL had obtained various credit facilities from State Bank of India. As per the terms of sanction. Assessee was required to give corpor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treated as deemed dividend income. The provision creates a fiction and on satisfaction of the following conditions, the amount is treated as deemed dividend. (1) The payer company must be a closely held company. (2) It applies to any sum paid by way of loan or advance during the year to the following persons : (a) A shareholder holding at least 10 per cent of voting power in the payer company. (b) A company in which such shareholder has at least 20 per cent of the voting power. (c) A concern (other than company) in which such shareholder has at least 20 per cent interest: (3) The payer company has accumulated profits on the date of any such payment and the payment is out of accumulated profits. (4) The payment of loan or advance is not in course of ordinary business activities. 9. In the present case, the Assessee satisifies conditions no 1 to 3. However with respect to condition no 4, it is stated that the loan was in granted in lieu of the the corporate guarantee given by the Assessee to the bankers of KDPML for advancing of various credit facilities to it and therefor the loan received by the Assessee is during the normal course of business and not a gratuitous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot on repayment be again credited to the fund of "accumulated profits" to avoid it again entering the area of deemed dividend and the amount of "accumulated profit" should be notionally reduced to the extent it has been deemed as dividend-- Company's accumulated profits have to be ascertained at the time of each loan and where the shareholder has a mutual, open and current account only the debits in excess of credits can be considered as loan to the extent of accumulated profits 11. Considering the facts of the present case in the light of the decisions, cited above, we are of the view that the amount received by the Assessee will have to be considered as deemed dividend but only to the extent of accumulated profits of KDPML as on the date of granting of loan/advance. It is seen that in the present case, the AO has not given any finding with respect to the accumulated profits of KDPML on the date of granting of loan/advance. We therefore remit the issue to the file of AO to determine the extent of deemed dividend u/s 2(22)(e) in the light of the aforesaid facts and the decisions cited above and decide the issue afresh as per law after giving a reasonable opportunity of hearing to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer. On the other hand learned A.R. submitted that the wages in proportion to the production was Rs. 0.7297 for the year under appeal as compared to Rs.0.7265 for the immediately preceding assessment year. He thus submitted that the wages was comparable with that of earlier years. He further submitted that for year A.Y. 2008-09, the assessment was framed under Section 143(3) and no disallowance was made on account of wages. He further submitted that for the labourers there was no designation but they were either skilled or unskilled labours. The learned A.R. further submitted that P. F. was deducted in the cases where the deduction of P.F. was mandatory and applicable. He thus supported the order of CIT(A). 14. We have heard the rival submissions and perused the material on record. It is an undisputed fact that the Assessee is engaged in the business of manufacturing of Texturised Yarn. It is also a fact that for the purpose of manufacturing the workers are also required for various activities. We find that Assessing Officer has disallowed the expenses mainly for the reason that the details of wages were not submitted in the format asked for, P.F was deducted only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the identity and genuineness of the supplier, he considered the entire packing expenses made from CPC trading of Rs. 1,25,81,224/- as bogus purchases. 16. Aggrieved by the order of Assessing Officer, Assessee carried the matter before CIT(A). CIT(A) after considering the submissions made by the Assessee and remand report deleted the entire addition by holding as under: 10.1 Therefore, considering the fact that M/s C.P.C. Trading is assessed to tax, has filed returns, confirmed sale of packing material to appellant and deposited cheques received from appellant in its bank account without any evidence of return of money in cash to appellant, the assessing officer's action of making addition cannot be sustained. Not furnishing of books of account by M/s C.P.C. Trading CO. cannot be a ground for addition in the case of appellant. 10.2 The additional evidence is also admitted as at the assessment stage assessee had furnished the address of M/s. C.P.C. Trading Co. at the assessment stage and Assessing Officer made the addition without summoning him. 11 Therefore, the addition made of Rs. 1,25,81,224/- is deleted. 17. Aggrieved by the order of CIT(A) the Revenue is now in appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purchases. Assessing Officer in his order has noted that he had issued summons under Section 131 of the Act and the summons were also sent through Inspector but the Inspector could not locate the address mentioned by the assessee, nor anybody in the location confirmed the existence of CPC Trading during the earlier periods. He has further noted that the address submitted by the Assessee of CPC Trading was the C/o address of restaurant. 21. During the course of remand proceedings the proprietor of the supplier (i.e. CPC Trading) did not produce the books of accounts though he was asked to produce the same. The supplier did not produce books of accounts even before CIT(A). On the other hand the reasons for deletion of the addition as stated by CIT(A) was that packing expenses have been increased in comparison to the preceding year, Assessing Officer had relied on the Inspector's report from making additions and at the remand stage proprietor of CPC Trading appeared and confirmed the transactions. Considering the aforesaid facts, we are unable to agree with the reasoning given by CIT(A) for deletion of the addition because the Assessee had not discharged the onus cast upon it ei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessee were not normal and natural business sales transactions. He also found that generally the margin in cae of high seas sale is of 3%. He accordingly considered the entire sales transaction to be not genuine and thereafter made the addition of 5% of sales amounting to Rs. 24,80,356/-. Aggrieved by the order of Assessing Officer, Assessee carried the matter before CIT(A). CIT(A) deleted the addition by holding as under: 12.3 After examining the reasons for addition in assessment order, it is apparent that assessment order suffers from internal contradiction. The Assessing Officer on the one handstates that sales are not genuine and on other hand adds 5% of the same which amounts to accepting sales as genuine. Moreover, non-reply by sales parties u/s 133(6) and not filing of confirmation of sales parties cannot be the reason for addition as no businessman can force its customers to reply to IT Department. It is not a case where purchases have been doubted. The appellant made sale transaction and has shown profit from it. It is not the case of Assessing Officer that purchases are bogus or inflated. Therefore, the addition made of Rs. 24,80,356/- has been made only on cert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of the Assessee that the parties with whom it had entered into transaction are related or known parties which resulted in giving of unusually long credit. Considering the totality of facts and the peculiar circumstances of the case and more so, when the Assessee has stated to have started a new business and for which it had received a long credit period from the supplier and it had in turn had given a long credit to its customers could not be satisfactorily explained by Assessee. In view of the aforesaid facts, we find the action of Assessing Officer in disallowing 5% of the sales amount to be justified. We thus upheld his order on this ground. Thus this ground of the Revenue is allowed. 5th ground is with respect to brokerage expenses. 27. During the course of assessment proceedings, Assessee was asked to submit the details of brokerage in the form of bill and the calculation of brokerage. From the details submitted by the Assessee, Assessing Officer noticed that the rate of commission ranged between 0.75% to 1.5%. He further noticed that where the agent wise details were submitted there were no mobile number of the agent. He also noticed that in case of some of the sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D.R. relied on the order of Assessing Officer. The learned A.R. on the other hand submitted that the details of brokerage above 50,000/- was submitted before Assessing Officer. He also placed on record the copy of the sale and also the copy of confirmations received from brokers. He further submitted that the brokerage was genuine business transaction and the payments were made by "account payee" cheque. The Assessee had also submitted the PAN No. of the brokers. The learned A.R. further submitted that the Yarn business is entirely based on brokers because majority of the customers are weavers who are scattered and operate in an unorganized structure. The broker plays an important role in making sales to them, of colleting orders as well as assuring timely payment from them. The learned A.R. further submitted that the brokerage expenses was 0.8% of the turnover as compared to 0.87% of the turnover in the immediately preceding year. He thus submitted that the expense on account of commission and brokerage has reduced during the year. He thus supported the order of CIT(A). 30. We have heard the rival submissions and perused the material on record. CIT(A) noticed that certain detai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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