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TMI Blog2018 (3) TMI 941X X X X Extracts X X X X X X X X Extracts X X X X ..... warranted. CIT(A) erred in restricting the disallowance to 1% of raw material consumed. Therefore, in the interest of justice and fair play for both the parties, we set aside the order of Ld. CIT(A) and remand the matter back to the file of AO for de novo adjudication - Decided in favour of assessee for statistical purposes Disallowance of site expenses-Maintenance and site expense u/s. 40(a)(ia) to the extent of labour charges and office rent - Non deduction of tds - Held that:- We note that out of the details of site expenses of ₹ 4,04,51,275/- the AO asked only the details of TDS of site expenses of ₹ 1,50,22,618/- pursuant to which assessee gave the details of this information sought. However, the AO disallowed site expenses and maintenance of ₹ 43,44,654/- and site expenses and others of ₹ 84,81,271/- which aggregates to ₹ 1,28,25, 925/- u/s. 40(a)(ia) and (ib) of the Act without providing proper opportunity to the assessee. The Ld. CIT(A) gave partial relief after taking note of the details submitted before him. The AO ought to have done the assessment by providing sufficient opportunity to the assessee and since no opportunity was given t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we uphold the order of Ld. CIT(A) and dismiss this ground of appeal of revenue. Allowability of hotel expenses - Held that:- Director and foreign employees as well as other employees/auditors of the assessee company have been staying in hotels and bills have been annexed with the paper book. So, the contention of the AO cannot be accepted. We have already upheld the order of the Ld. CIT(A) in respect to travelling expenses because it is for the purpose of business. When they travelled they have to stay in various places/countries for which expenses are for the purpose of business of the assessee, therefore, we uphold the order of the Ld. CIT(A) who was pleased to delete the ad hoc disallowance made by the AO. Allowability of professional fees paid - payment of tds - Held that:- Professional fees paid to Advent processing in the earlier years and subsequent assessment years has not been disallowed and for the first time the AO has resorted to disallow the same. We take note that the TDS of the payment has been deducted and the assessee has submitted the detailed break up of payment along with the copies of the bills before the AO. However, on a specious plea that the nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidering the decrease of ₹ 226.55 lakhs in closing stock, the consumption of raw materials have shown an upward trend of 25% whereas the production of finished products shown an upward trend of 10% only. At the same time he also noted that considering the purchase and opening stock, the closing stock valuation of slide gate items was found less than the opening stock as also in respect of cement. The AO in the assessment order passed u/s. 143(3) of the Act made a disallowance @ 2% of raw material consumed, as the consumption of raw material has shown an upward trend of 25%, whereas the production of finished goods has increased by 10% only. On appeal, the Ld. CIT(A) considering the AO s disallowance on higher side restricted the same to 1% of the raw material consumed. Aggrieved against the restriction of disallowance @ 1% both the assessee as well as the revenue is in appeal before us. 3.1. We have heard rival submissions and gone through the facts and circumstances of the case. We note that that according to AO, in the assessment year under consideration there is abnormal increase in the consumption of raw material by 25% than compared with the increase in production of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and the closing stock of the year are discernible from annexure 20 clause 28(b) (page 35 of paper book). With the aforesaid observation, we remand the matter back to the file of the AO to decide this issue afresh after giving adequate opportunity to the assessee. 4. Ground no. 3 of both the assessee s appeal and revenue s appeal are against the order of Ld. CIT(A) on account of disallowance of site expenses-Maintenance and site expensesothers u/s. 40(a)(ia) of the Income-tax Act, 1961 (hereinafter referred to as the Act ) to the extent of labour charges and office rent. Briefly stated facts are that the AO disallowed the site expenses maintenance of ₹ 43,44,654/- and site expenses others of ₹ 84,81,271/- u/s. 40(a)(ia) of the Act on the ground that the assessee had not furnished the details relating to TDS in respect of the said site expenses maintenance and others. On appeal, the Ld. CIT(A) deleted the disallowance u/s. 40(a)(ia) of the Act in respect of other expenses and restricted the disallowance only on two items of expenses by observing as under: The AO made disallowance u/s. 40(a)(ia) on the ground that the appellant failed to produce tax dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for there is a statement in the order of the Tribunal, the fact-finding authority, that reads thus : We will straightaway agree with the assessee s submission that the Income-tax Officer had not given to the assessee proper opportunity of being heard. That the assessee could have placed evidence before the first appellate authority or before the Tribunal is really of no consequence for it is the assessment order that counts. That order must be made after the assessee has been given a reasonable opportunity of setting out his case. We, therefore, do not agree with the Tribunal and the High Court that it was not necessary to set aside the order of assessment and remand the matter to the assessing authority for fresh assessment after giving to the assessee a proper opportunity of being heard. Two questions were placed before the High Court, of which the second question is not pressed. The first question reads thus : 1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in not setting aside the assessment order in spite of a finding arrived at by it that the Incometax Officer had not given a proper opportunity of heari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax. I have considered the submissions of the appellant. The AO appears to be not justified to make disallowance u/s. 40(a) (ia) without calling for the details and examining the nature of such expenses debited. However, the perusal of details of nature of expenses submitted shows that in respect of 'labour charges (through contractors) and 'office rent', the appellant should have made tax deductions. As such, I direct the AO to restrict the disallowance u/s 40(a)(ia) only to these two items of expenses and delete the disallowances/additions made in respect of other expenses. The appellant gets a partial relief on this ground. Aggrieved, revenue and assessee both are in appeal before us. 5.1. We have heard rival submissions and gone through facts and circumstances of the case. The assessee has not pressed this ground of appeal it preferred on this issue. We note that out of ₹ 41,40,940/- AO disallowed ₹ 2,17,760/- on the plea that details of the disbursal was not provided to him, so he made disallowance. The Ld. CIT(A) has given partial relief by holding as supra. However, we do not understand in what context the Ld. CIT(A) has given relief to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 lacs. Brief facts of the issue are that the AO made the disallowance of ₹ 5 lacs out of ₹ 16,89,072/- incurred on gifts and presents on the contention that the assessee neither categorized the persons to whom gifts were presented nor their correlation with business activity. On appeal, the Ld. CIT(A) while deleting the ad hoc disallowance made by the AO has observed as under: I have carefully examined the submissions of the appellant including case laws relied upon. I find there is force in appellant s arguments. The AO has made on ad hoc addition without segregating such items. As such there is no basis for such ad hoc disallowance. The appellant furnished details of gifts and presents categorizing the persons to whom gifts were presented. As seen from the facts of the case I am satisfied that the gifts and presents are given to customers in the course of the business and incurred for the purpose of promoting business activities and maintaining the relationship with the customers. In view of the facts and case laws cited, I am of the view that ad hoc disallowance made by the AO is not correct and liable to be deleted. The appellant s ground is allowed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round that the expenditure incurred is not exclusively laid out for the purpose of business. On the other hand the appellant submitted that the expenditure incurred for the purpose of acquisition of refractory business and hence for the purpose of business. The appellant relied on certain case laws in support of its arguments. I have perused the assessment order. I find myself not in agreement with the reasoning given by the A.O for making such disallowance. As argued, the appellant is placed in a better position to decide about incurring particular expenditure in a particular way. It is to be seen whether the expenditure incurred is genuine and incurred in the course and/or for the purpose of business. In view of the facts and keeping in view the judicial decisions on this subject, I direct the AO to delete the addition of ₹ 5,49,995/-. Aggrieved, revenue is in appeal before us. 8.1. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the assessee is a subsidiary of Vesuvius group Ltd. situate in UK. The Vesuvius Group Ltd. has various subsidiaries all over the world and the assessee undertakes various transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng in view the case laws cited, I direct the A.O to delete the addition made on this count. Aggrieved, revenue is in appeal before us. 9.1. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the employees of the group companies, auditors, directors were travelling to different units of the company for holding various conferences and seminars. We have already upheld the travelling expenses allowed by the Ld. CIT(A). The assessee had claimed an amount of ₹ 73,47,894/- for hotel expenses. However, the AO disallowed ₹ 20 lacs on the specious plea that the assessee has not produced a single voucher of hotel expenses, so, the AO made an ad hoc disallowance of ₹ 20 lacs. The Ld. CIT(A), however, allowed the claim of the assessee. We note that the assessee has produced bills/vouchers of hotel expenses, samples of which have been placed at page nos. 204 to 256 of the paper book. From a perusal of the same, we note that the Director and foreign employees as well as other employees/auditors of the assessee company have been staying in hotels and bills have been annexed with the paper book. So, the contention of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the reply of the assessee and according to the AO, the invoice only shown that the term drawing and design. So, he was not able to understand the nature of the drawing and design and the relevant of it to the business of the assessee. Therefore, he was pleased to disallow the aforesaid amount. On appeal, the Ld. CIT(A) noted that the assessee had submitted the details of services rendered by Advent Processing and also the assessee had deducted the TDS on such payments. It was brought to our notice that the professional fees paid to Advent processing in the earlier years and subsequent assessment years has not been disallowed and for the first time the AO has resorted to disallow the same. We take note that the TDS of the payment has been deducted and the assessee has submitted the detailed break up of payment along with the copies of the bills before the AO. However, on a specious plea that the nature of drawing and design and its relevance to the business carried out by the assessee could not be understood from the invoice prompted the AO to make the disallowance, which the Ld. CIT(A) taking note of the evidence furnished and the TDS deducted and also taking into considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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