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TMI Blog2016 (11) TMI 115X X X X Extracts X X X X X X X X Extracts X X X X ..... d in any of the contract work relating to the assessment year under consideration and it has also been pointed out by the Ld. Counsel that, in fact, one of the contractors was never employed by the assessee company at all, therefore, we agree him that reliance placed on such statements does not corroborate the stand of the Department and in fact this material cannot be considered for making any kind of disallowance on account of labour expenses. This fact has been noted by the Ld. CIT(A) also as incorporated above by us. However, ld. CIT(A) has proceeded to make the ad-hoc disallowance @ 5% simply on the reason that it reflects a modus operandi that, assessee might be inflating the labour expenditure. Once the material relied upon itself has been disapproved or found to be irrelevant qua the present assessment year, then it cannot be the basis or ground for drawing any adverse inference. Thus, we hold that, ad-hoc disallowance as sustained by the Ld. CIT(A) @ 5% cannot be upheld either on facts or in law and accordingly we direct the AO to delete the addition made on this score. Disallowance of depreciation - assessee did not commence its wind-mil project and did not start the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed any expenditure for earning of the dividend income nor it had been demonstrated that, why no expenditure can be held to be attributable. The primary and initial onus is upon the assessee to demonstrate that no expenditure is attributable for earning of the exempt income and expenses debited in the accounts. It is then onus shifts to the AO to satisfy himself about the correctness of the claim of the assessee having regard to the accounts maintained by the assessee. Thus, looking to the facts of the case, we find that the disallowance made by the AO and as confirmed by the CIT(A) under Rule 8D(2)(iii) appears to be reasonable hence, the disallowance is confirmed. Addition on account of liasioning fee paid - Held that:- From the facts and material available it is evidently clear that, M/s. Sahadev Project was providing this kind of services not only to the assessee but also to the various other customers in this line. As incorporated in the foregoing paragraphs, not only he has shown all such receipts from rendering of such services in his income-tax returns, but the entire details of regular assessment of M/s Sahadev Project were also filed before the authorities below to sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 143(3) of the Act are not in accordance with the law and are contrary to the facts and circumstances of the present case. 2. The Ld. CIT(A) / AO has passed the appellate order/assessment order on presumptions and assumptions without providing sufficient opportunity to the Appellant in violation of the principles of natural justice. 3. Based on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in making an ad-hoc disallowance of ₹ 1,93,72,170 from the expenditure debited under cargo handling, labour and transport charges without there being any relevant material in support thereof and disregarding detailed submissions before the Ld. CIT(A) . 4. Based on the facts and circumstances of the case and in law the Ld. CIT(A) /AO has erred in not allowing depreciation of ₹ 2,53,39,773 claimed on windmill at Rajasthan ignoring the evidence placed on record by the Appellant to prove conclusively that the windmill was commissioned during the year. 5. Based on the facts and circumstances of the case and in law the Ld. CIT(A) /AO has erred in disallowing finance cost amounting to ₹ 11,101 on account of interest paid on term lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertaining to the financial year 2012-13 (relevant to the AY 2013-14) in this financial year 2009-10 and pointed out that, already some bills were lying pending for booking in the accounts aggregating to ₹ 1,99,53,580/- and the survey team has already taken such bills and have also seized the same. Apart from that, the bills which were to be received against work done and booked up financial year to the date of survey were approximately ₹ 1.5 crores and this fact was duly intimated to the survey team. While calculating the GP ratio on the date of survey, the amount of expenses aggregating to ₹ 3,49,53,580/- were also not been considered and it was for this reason that there was a higher reporting of GP on that date. Thereafter, the assessee gave its detail submission regarding direct expenses for cargo handling, labour and transportation, net profit ratio etc. The relevant extract of the assessee s submissions have been incorporated by the AO at pages 9 and 10 of the assessment order. The AO, after referring and relying upon the statement of the two labour contractors recorded at the time of survey, came to the conclusion that, the assessee was following a trend to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e gamut of facts, observed that assessee has given full analysis of the net profit worked out by taking into account various factors as discussed in detail in his order in Para No. 6.2 and thereafter came to the conclusion that the addition made by the Assessing Officer on account of suppression of GP/NP cannot be sustained. However, on the basis of the material gathered during the course of the survey proceedings particularly on the basis of the statements of the two labourers, the ld. CIT(A) made an ad-hoc disallowance @ 5% from the expenditure debited under cargo handling, labour and transport charges of ₹ 38,74,43,418 to meet the ends of justice which worked out to ₹ 1,93,72,170/-. The relevant observation and finding of the CIT(A) in this regard reads as under:- I have carefully considered the facts of the case and the submissions of the Ld. AR. I have also gone through the decisions relied on by the AO and the Ld. AR. As seen from the working of the AO that he has estimated the profits of assessment year 2010-11 even though he has worked out the same based on the statistics taken for FY 2011-12 and part of FY 2012-13 (till 27.12.2012). There were no evide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e us Ld. Counsel for the assessee, Shri Ajit Kumar Jain, after narrating the facts of the case submitted that the net profit percentage was computed by the AO without pointing out any defect in the books of account and only on the basis of the survey report for a later year, which cannot be sustained either on facts or in law. He brought to our notice that in the year of Survey i.e. AY 2013-14 there was no adjustment made by the AO on the same issue. A copy of the assessment order passed u/s 143(3) for the AY 2013-14 was placed on record by him. On this basis and material fact he pleaded that the AO cannot draw adverse inference in the year not pertaining to survey year and make an addition in AY 2010-11. On merits, Mr. Jain invited our attention to the fact that the assessee company was engaged in a number of activities such as; (i) Trading in various commodities; (ii) Stevedoring and clearing/forwarding; (iii) Power generation through windmills and (iv) Other direct income. The AO has considered the GP/NP ratio of all the activities on consolidated basis. It was pointed out by him that the trading result for a part of the year was being compared with the trading result of the who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued and emphasized on the modus operandi of the assessee, which goes to indicate that assessee was inflating the labour expenses to suppress its profit. The survey finding indicates that the assessee was inflating the expenses and this is sufficient reason to draw adverse inference in this year to estimate net profit rate. He pleaded that the order of the AO therefore be restored. In the alternative, he submitted that the order of Ld. CIT(A) confirming the disallowance out of the cargo handling and labour expenses should be confirmed, looking to the overall facts of the case. 9. In the rejoinder Mr. Jain submitted without admitting that the modus operandi of a subsequent year cannot be imported to the preceding year without any evidence. 10. We have heard the rival submissions, gone through the relevant finding given in the impugned orders as well as material placed before us. The entire genesis of addition on account of net profit rate and ad-hoc disallowance of labour expenses is the information gathered during the course of survey conducted on 27th December, 2012 at the Branch Office situated at Gandhidham, that is, during the financial year 2012-13 (AY 2013-14). The autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion whatsoever relating to the financial year 2009- 10 (i.e., relating to the impugned assessment year 2010-11) was found, therefore, we agree with the conclusion of the Ld. CIT(A) that net profit rate cannot be estimated for this year for making any kind of addition. It has been brought on record by the Ld. Counsel that for the year of survey itself assessment under section 143(3) has been completed and no such addition either on estimation of net profit rate or on account of labour expenditure has been made. This fact clearly implies that, once in the survey year no adverse inference has been drawn, then as a logical corollary without any material or information on record qua this year, no addition on account of estimation of net profit can be made. We also agree with the contention of the Ld. Counsel that the trading result for the part of the year cannot be compared with the trading result of whole of preceding accounting year, because various expenditures like, interest, depreciation and host of other expenditures are debited or provided on the last day of the accounting year. Thus, we reject the estimation of net profit by the AO and uphold the order of the CIT(A) on this p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... production of power through windmill projects. During the year the assessee had started generation of power through a windmill project installed in the state of Rajasthan. During the course of the assessment proceedings the Assessing Officer noticed that the Assessee was not in possession of the land for setting up the windmill project as on 31stMarch, 2010 and in any case assessee did not have sufficient evidence to show that the windmill commenced its operation during the year as the Commissioning Certificate was itself dated 15thApril, 2010. It was thus concluded by him that the windmill project did not commence its operations in the year under consideration and therefore, assessee was not entitled to claim depreciation on the windmill in the AY 2010-11. However he held that the assessee can claim depreciation it in the subsequent year. 13. Before the ld. CIT(A), the assessee submitted that, AO has mainly relied upon one single fact that the land was registered on 22nd November, 2010, therefore, assessee was not in possession of the land. This observation of the AO was rebutted on the ground that registration of the sub-lease deed was only on legal formality pursuant to regis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order of the AO and observed that, actual function of the wind-mill had only started / commenced in the financial year relevant to assessment year 2011-12, therefore, assessee was entitled to depreciation in the subsequent year only, as per law. 14. Before us, Mr. Ajit Jain submitted that the Assessing Officer as well as the ld. CIT(A) have not considered the documentary evidences submitted by the Assessee before them. It was pointed out by him that the power was generated for the month of March 2010 and the billing for the same was also done. In support our attention was invited to page 107 of the paper book for the power generation invoice and page 108 of the paper book for the power generation report. He submitted that the power generation bill showing 23.23 kW of power generated as per the invoice dated March 31, 2010 is the conclusive evidence of existence of windmill at the particular site and there is no reason to have even remote suspicion because the agreement to purchase the power is with none other than a semi-Government authority i.e. Rajasthan Renewable Energy Corporation Limited. It was further pointed out by him that the registration of the sublease deed was on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at, firstly , the land on which the wind-mill was installed was registered on 22.11.2010 and assessee was not in possession of requisite land and secondly , the commissioning certificate is dated 15.04.2010, therefore, depreciation cannot be allowed in this year. From the perusal of the relevant records, it is seen that, the assessee had raised the bill to the Supritendent Engineer, Rajasthan (RPPC), Jaipur Discom on 31st March, 2010 for the sale of power of more than 23 KW generated on the last day of March, 2010, which has been placed in the paper book at page 108. The finding of the authorities below that the assessee was not in the possession of the land to install the Wind Mill as the registration of land was done in November, 2010, has no substance, because it has been brought on the record that assessee was in the possession of the land by virtue of sub-lease agreement and not only had installed the wind-mill project but also commenced the production from the month of March, 2010 onwards. This is evident from in the invoices raised right from April 2010 to July 2010 and other host of other material and evidence filed before the authorities below which has been incorporated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n taken for the purpose for installing wind-mill, because as stated above, the sale proceed of the power generation has been accepted and taxed in this year. Thus, ground no.5 is allowed. 20. Ground No. 6, relates to disallowance made by the AO u/s 14A for sums amounting to ₹ 19,552/-. During the assessment proceedings, the Assessee was asked to compute the disallowance under Section 14A of the Act, since the Assessee had earned dividend income of ₹ 35,800 during the year under consideration in the investments made in other companies. It was further observed that in the Balance Sheet, the Assessee had shown investment to the tune of ₹ 55,25,062 during the year which stood at ₹ 25,95,829 last year. 21. In the first appeal the Ld. CIT(A) held that the Assessee had not made any disallowance under Section 14A even though it had earned exempt income during the year. It was further held that Rule 8D has been applied by the AO while computing the disallowance which is justifiable and further AO had not made any disallowance on account of interest payments and had restricted only to dividend income of the Assessee. Thus, he confirmed the disallowance made by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the case and in law, the Ld.CIT(A) erred in deleting the addition made by the A.O. of ₹ 1,05,84,936/- against the liasoning fees paid to M/s. Sahadev Projects Pvt. Ltd. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made by the A.O. of ₹ 3,29,01,134/- against the suppression of GP/NP. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made by the A.O. of ₹ 53,17,741/- against the survey fees paid. 4. The appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of appeal. 5. The appellant prays that the order of CIT(A) on the above ground be set-aside and that of the assessing officer be restored . 25. Since we have already decided ground No.2 in while deciding the issue in ground No.3 in assessee s appeal, therefore, in view of the finding given therein, the addition made on account of estimation of net profit rate does not stand and accordingly, ground No.2 is dismissed. 26. Ground No.1 relates to the addition made b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. In the course of the survey under section 133A, the authorized officer did find the bills from the said company i.e. M/s. Sahadev Projects Pvt. Ltd. in regard to the liaison work done by it. It was now the question of not using the services of M/s. Sahadev Projects Pvt. Ltd but the payments made our very high. It is only the personal opinion of the DDIT (Inv)/AO. 4. The authorized officer recorded the statement of Shri Harshad Gandhi, Director of the Appellant company and it was explained to him that the Appellant has regularly engaged the said company under a written agreement for providing certain specific professional services as specified in each bill and the fees paid to the said company is claimed as liaison charges. 5. It was also explained to the authorized officer that the Appellant company has no personal relation whatsoever with the said M/s. Sahadev Projects Pvt. Ltd, and it is certainly not a relative of the Appellant company within the meaning of section 40A(2)(b) of the Act. 6. The Appellant submits that the company M/s. Sahadev Projects Pvt. Ltd. have categorically confirmed that certain specific professional services were rendered and also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jection of the AO was that the amount paid is on the higher side as such he has restricted to 50% of the amount debited. On the other hand, the learned AR with detailed explanations has brought on record that the services were rendered as per a written agreement and payments were made in cheque after making applicable TDS. The assessment details of Sahadev Projects were filed and services to other companies, besides the Assessee Company, was never questioned. The explanation given by Ld. AR is self-explanatory and convincing. In view of these facts I fully agree with the learned AR that the disallowance of 50% of liasoning fee is uncalled for. The ground is allowed. 29. Before us, Ld. DR filed the copy of statement of Shri Harshad C Gandhi, MD of the assessee company and the also the copy of statement of Shri Devikanand D. Sehgal recorded under section 131 in a separate paper book. He submitted that, Mr. Sehgal admitted that, there is no written agreement and further pointed out that he did not have any established office or staff and even the representative of the assessee company has never visited the office of Sahadev Project. Making such a huge payment to such an entity s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the payment is excessive or unreasonable. The Assessee before the authorities below had relied upon plethora of judgments which have been taken note at page 6 of the assessment order on which there is no comment from the AOs side. Thus having regard to the totality of the facts and circumstances of the case he submitted that the disallowance of 50% of the liaison fees as made by the AO is not sustainable either on law or on facts. It was also clarified by him that during the year, the liaison fees debited in respect of the above party is ₹ 1,51,74,205/- but, the AO has considered 50% of the payments made to it during the year as disallowable and thereby making excessive addition on his own fallacious reasoning. 31. We have heard the rival submissions and perused the relevant finding given in the impugned orders as well as material placed before us. The assessee is in the business of stevedoring relating to shipping business. It has been brought on record that, since inception, the assessee has been regularly receiving liasioning services under a written agreement dated 24th September, 2004 between the Assessee Company and M/s Sahadev Projects Pvt. Ltd. Such a payment ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngagement of surveyors for stevedoring activities was basic requirement and needs of the assessee s business and the payment has been paid on the basis of bill raised by him on which payment of service tax has been paid and also TDS has been deducted. So, Ld. CIT(A) deleted the said addition after observing and holding as under:- I have carefully considered the submissions of the learned AR. As seen from the facts of the case the payments were made in cheques and duly accounted in the books of account. Required TDS was also made from the payments made to the surveyors I, therefore, do not find any irregularity in the payment. Further, the AO was also silent as to who is the party/parties to whom survey fee was paid in AY 2006-07 which is inadmissible. In view of the above, I m of the opinion that the disallowance of survey fee is uncalled for. The ground is allowed. 34. The Ld. DR strongly relied upon the order of the AO, whereas, the Ld. Counsel before us submitted that, engaging surveyors for stevedoring activities is a pre-requisite requirement. Survey fees are charges paid by the Assessee to surveyors who conduct a survey while loading and unloading of shipments and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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