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TMI Blog2019 (10) TMI 980X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) that the AO has rightly taken the value of land at Nil and treated the profit as short term capital gain and hence we dismiss corresponding grounds of the appeal of the assessee. Deduction u/s 80G - the fact remains that during the assessment proceedings itself, the assessee has produced donation receipts for ₹ 18,000/- ₹ 36,000/- paid to Amar Seva Sangam, which was eligible for deduction U/s.80G as per order dated 29.09.2003 of the CIT-II, Madurai and was valid upto 31.03.2006 and on such material it claimed deduction U/s.80G. AO refused to allow such claim as the assessee has not claimed this deduction in its return. Since the assessee has relied on the Hon ble SC decision in the case of Goetze India Ltd v CIT [ 2006 (3) TMI 75 - SUPREME COURT] we direct the AO to reconsider this claim and allow the relief, if the claim is found meritorious on other respects, as if this claim was made in the original return itself. The corresponding grounds of the assessee on this issue are treated as allowed. Taxability of lease rent received from leasing out the machinery building shed under the head income from other sources instead of taxing it under the head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these purposes and on such basis determine 30% of the admitted receipts would be the reasonable expenditure that could be required for earning the impugned receipts and therefore direct the AO to allow 30% of ₹ 68,09,001 at ₹ 20,42,700/- towards reasonable expenditure which could be required for earning the impugned income from sale of broken and bran and accordingly determine the income from this source at ₹ 47,66,301/- as against ₹ 68,09,001/-. Thus, we allow the assessee s corresponding grounds of appeal to this extent. Disallowance of processing charges - HELD THAT:- Assessee filed an appeal before the Ld.CIT(A). It is clear from the order of the Ld.CIT(A) that the assessee has not furnished any details and established that its claim is in order. Therefore, the Ld.CIT(A) upheld the action of the Assessing Officer. Even before us, the assessee is not able to lay any material to dislodge the findings recorded by the lower authorities and that the decision taken by them is unreasonable. Therefore, the corresponding grounds of the assessee s appeal are dismissed. With regard to the estimated addition made towards sale of bran, it is clear from the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty was used by the assessee for its business and depreciation has been claimed by it in the earlier years, the AO held that the profit from the transfer would be shortterm capital gains. The assessee was asked to furnish the guideline value for the purpose of assessing the market value of land u/s.50C and the break up of the capitalized amount including the cost of land. Since the assessee could not furnish any evidence to prove the purchase price of the land and in the absence of any details, the AO has treated it as short term capital gains. Aggrieved, the assessee filed an appeal against the treatment of profit on sale of land as short-term capital gain. It contended that the AO did not assign any value to the cost of land and adopted the entire market value of the land of ₹ 7,62,500/- as on June, 2003 as short-term capital gain and adopting the cost of land at 70% of the market value fixed by the AO in 2004-05, argued that there would not be any short-term capital gain and the long-term capital gain would be ₹ 2,28,750/-. The Ld. CIT(A) held that when no bifurcation of the asset is provided and depreciation has been claimed on the entire amount capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a revised return and the learned CIT(A) erred in confirming the disallowance. 4. Per contra, the Ld.DR submitted that the assessee has purchased the rice mill such as land and building, machineries etc as per books for ₹ 1,05,24,960/- and capitalised in its books at ₹ 1,19,05,102/- including the improvements and it had claimed depreciation in the earlier years on the entire amount capitalized which included cost of the land. The AO required the assessee to furnish the market value of the land as on the date of transfer in June 2003 by way of book entry. The assessee could not produce any evidence to indicate the cost of the land included in the total purchase cost. The total area of the land is 3 acres and 5 Guntas. From a print out taken from the internet as on 21.12.2006, as per which the value land at Mahajanahalli Municipal limits (being bagayat dry land) on that day was ₹ 3,57,500 per acre. Based on this basis, the AO estimated the market value of the entire land as on June 2003 at ₹ 7,62,500/- at the rate of ₹ 2,50,000/- per acre. Since, no break up is available either with the assessee or with the Department to ascertain the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of land at Nil and treated the profit as short term capital gain and hence we dismiss corresponding grounds of the appeal of the assessee. 5.1 On the claim of deduction u/s 80G, the fact remains that during the assessment proceedings itself, the assessee has produced donation receipts for ₹ 18,000/- ₹ 36,000/- paid to Amar Seva Sangam, which was eligible for deduction U/s.80G as per order dated 29.09.2003 of the CIT-II, Madurai and was valid upto 31.03.2006 and on such material it claimed deduction U/s.80G. The AO refused to allow such claim as the assessee has not claimed this deduction in its return. Since the assessee has relied on the Hon ble SC decision in the case of Goetze India Ltd v CIT (2006) 204 CTR (SC) 182, we direct the AO to reconsider this claim and allow the relief, if the claim is found meritorious on other respects, as if this claim was made in the original return itself. The corresponding grounds of the assessee on this issue are treated as allowed. 6. In the result, the assessee s appeal for the assessment year 2004-05 is partly allowed. Assessee s Appeal in ITA No1873 /CHNY/2010, for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the paddy/rice was purchased by the lessee, M/s. Peninsula Food Products Ltd, a sister concern. Since the Processing of paddy/rice is not a onetime transaction but a continuous process, the AO held that the byproducts are also produced continuously. Therefore, there should be an opening and closing stock of byproducts such as broken rice/bran at the end of every year. Since the assessee failed to produce the quantitative details of the sale of broken rice / bran, also the quantitative details of closing stock of bran and broken rice, the AO rejected the books of account maintained by the assessee and estimated its income relying on Briz Byhushan Lal Parduman Kumar vs. CIT (115 ITR 524). Since the assesses sold away the by products of bran and broken rice, the AO held that there is no requirement for the expenses towards travel, carriage inwards etc, and treated the entire sale proceeds of ₹ 68,09,001/- as income of the assessee and completed the assessment. On appeal, the Ld. CIT(A) dismissed the appeal. Against the order of the Ld. CIT(A), the assessee filed this appeal. 8. The assessee challenged the taxability of lease rent received from l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case laws relied upon by the Ld. AR are not directly on the issue. In the case of Universal Plastics Ltd. v. CIT 237 ITR 454, the Hon'ble Supreme Court has held that the lease as a temporary means of exploiting the commercial asset would constitute business income. However, in the case of the assessee there is no end in sight to the lease agreement. The lease started in October, 2002 and is still continuing. It is also seen that in the next assessment year also the lease was in force. By no stretch of imagination, this can be a temporary means of exploiting the commercial assets. In view of these facts, the Ld. CIT(A) held that the AO has correctly taxed the income under other sources. With regard to the allowability of expenses incurred to earn the income, the Ld.DR submitted that the Ld.CIT(A) found that the AO had already allowed 75% and taxed only 25% of the lease rentals as its income. Even in computing the income from house property only a deduction of 30% of the income is allowed whereas in this case the AO has allowed deduction of 75%, which the Ld. CIT(A) has considered it as very fair and reasonable. Therefore, Ld. CIT(A) has rightl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,031/-, interest and finance charges ₹ 10,85,532/-, depreciation on the plant and rice mill machinery ₹ 40,79,967/- comes to ₹ 53,20,470/- only. This leaves the balance of ₹ 14,95,530/- (68,16,000 - 53,20,470 ) which was allowed towards the employee cost and administrative expenses for the purpose of earning the lease rental income u/s 57(iii). In the absence of any material from the assessee to assail the findings recorded by both the lower authorities towards the quantum of employee cost and the administrative expenses as unreasonable, we uphold the lease rental income determined at ₹ 22,72,000/- and dismiss the corresponding grounds of the assessee. 11. The next issue is the rejection of books of account by the AO by invoking the provisions of section 145 and making the disallowance of expenses incurred for sale of by-products of bran and broken rice. It is submitted that the Ld. CIT(A) erred in upholding the rejection of books of account for mere deficiency of stock particulars and in this regard, the assessee relied on the decisions of the Gauhati High Court in the case of Madanani Construction Corporation Ltd 295 ITR 45 and the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the AO would be justified in rejecting book result and making necessary additions to the declared profit on estimate basis. With regard to the disallowance of expenses incurred for sale of by-products of bran and broken rice, the ld DR submitted that the CIT(A) found that the assessee wanted to claim a notional amount towards cost of bran broken rice sold by it which was never paid by it to its sister concern. The lease rent fixed by the assessee to its sister concern at ₹ 2/ per kg. of rice would have been fixed after taking into consideration the expected realizations that the assessee would get by sale of bran broken rice. Further, all the processing is done by the assessee's sister concern and the assessee does not carry out any activity, other than selling the by product and therefore no expenditure can be allowed towards the sale realization. Therefore, based on the facts on records, the Ld. CIT(A) held that no expenses can be allowed towards sale of bran broken rice and the AO has rightly taxed the sale proceeds of bran broken rice. Though, the assessee challenged these findings, yet it has not placed any material before this Hon ble Tribunal in suppo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 11,43,126/- minus insurance of ₹ 1,55,031/- and the lessee has not claimed such expenses etc. Such a huge claim, on the line of business, on admitted income and in the absence any reliable material from the assessee, appears totally unrealistic. Neither the assessee nor the revenue could assist us in determining the fair and reasonable income from this source. Since there is no cost involved on the purchase and processing of broken and bran to the assessee, however, the cost of sale and distribution is required to be considered, therefore we consider that in this line of business an assessee may at best incur about at 30 % for these purposes and on such basis determine 30% of the admitted receipts would be the reasonable expenditure that could be required for earning the impugned receipts and therefore direct the AO to allow 30% of ₹ 68,09,001 at ₹ 20,42,700/- towards reasonable expenditure which could be required for earning the impugned income from sale of broken and bran and accordingly determine the income from this source at ₹ 47,66,301/- as against ₹ 68,09,001/-. Thus, we allow the assessee s corresponding grounds of appeal to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he processing charges as there was a heavy loss in Peninsula Food Products P Ltd., as it exported polished rice on a fixed price and also due fluctuation in rice price, the sister concern could not pay the processing charges as agreed and further it was orally agreed between the two companies for the above transaction without payment of processing charges but it left over the broken rice and bran, the AO has not accepted this explanation as the broken rice and bran were regularly leased to the lessor company in the previous years. He held that when the lease agreement executed on 03-10-2002 between the assessee and the sister concern is in force, no oral agreement is enforceable in law. Further, the lease agreement was also not cancelled. So, he required the assessee to furnish the details of receipts from processing of paddy rice as disclosed in the earlier year and found the following income from different sources: Source March 2007 March 2006 Processing charges -- 90,88,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the of various disallowances / restrictions/ additions made by the Ld.CIT(A), the assessee filed the appeal. Against the deletion of medical expense of ₹ 67,069/- and the addition made towards the processing charges, the Revenue also filed the appeal . 16. The Ld.AR submitted that the CIT(A) erred in sustaining the action of the AO in disallowing ₹ 1,89,476/- representing research expenses ₹ 6,30,000/- consultancy charges U/s.40(a)(ia) r.w.s.194J, license fee for testing at ₹ 2,78,222/-, ISO certification expenses at ₹ 21,814/-, medical expenses of ₹ 67,069/-, mess expenses of ₹ 16,59,455/-, restriction of ₹ 10,00,000/- towards salaries and wages and sustaining the estimated income of ₹ 8,51,750/- from the sale of broken rice and bran, without assigning proper reasons and justification, the expenses incurred were inextricably connected with the business of the assessee and therefore, they are allowable as deduction U/s.37. 17. Per contra, the Ld.DR submitted that on perusal of the details furnished by the assessee the AO found that certain expenses which were claimed under various heads do not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aimed by the assessee are not related to the line of business and hence, disallowed them / restricted the claim. Aggrieved, the assessee filed an appeal before the Ld.CIT(A). It is clear from the order of the Ld.CIT(A) that the assessee has not furnished any details and established that its claim is in order. Therefore, the Ld.CIT(A) upheld the action of the Assessing Officer. Even before us, the assessee is not able to lay any material to dislodge the findings recorded by the lower authorities and that the decision taken by them is unreasonable. Therefore, the corresponding grounds of the assessee s appeal are dismissed. With regard to the estimated addition made towards sale of bran, it is clear from the order of the Assessing Officer that the assessee has been offering sale of broken rice and bran in all the years. The generation of bran and broken rice in the course of processing of rice is a material fact which cannot be denied. Further, the Ld.CIT(A) found from the audited accounts of PFPPL, that no sales of broken rice or bran has been shown. Therefore, the sale of bran has to be reflected in the books of the assessee. In the absence of full ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt portion of the order of the Ld.CIT(A) as under:- 11. The next issue relates to estimation of processing charges at ₹ 1,09,05,600/ The AO, in the assessment order, has stated the following reasons for the above estimation: the assessee company has not disclosed any income under the head processing charges for using machinery, building shed measuring 22,000 sft. It is evident that for producing broken rice the machinery was used for processing paddy / rice. The objective of the assessee company is to earn profits by way of doing business activity and not doing any charity or free to any other business concerns. As the assessee company did not disclosed the processing charges as income, the income i.e. the processing charges are fairly, truly and reasonable estimated based on the prevailing market rates, that is, the assessee's rates charged in the previous year. The assessee company fairly did better business than the last year. It is also evident from the sale of broken rice the proceeds amounting to ₹ 72,03,180/ as against 60,89,000/ in the immediate preceding year which is equivalent to an increase of 20% than the last y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess had not been cleared by the lessor in any veer. When the lessor soLd. All the bran and credited the proceeds into his profit and loss account the lessee did not object to the same. When the lessee is the legal owner of the bran the sale proceeds of the bran also should go to the lessee only. The lessee had been magnanimous to forego his right in respect of the bran in 2006-07 in favour of the assessee. It has therefore been the turn of the lessor to forego his right to receive the lease rental of ₹ 2 per Kg in 2007 08 when the lessee had incurred losses. The assessee had already received ₹ 72,03,180 by way of sale of bran. Though the assessee has no right to retain the sale of bran for him the lessee did not claim the same. The sale of bran had sufficiently compensated the assessee for the sacrifice of the lease rent. In the light of the above submissions there is no case for estimation of income from lease rental of the plant and machinery and a part of the mill premises. When there is no ground (or estimation of income at all from lease rental the question does not arise regarding the incremental growth of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e lease agreement was entered into where by the assessee undertook the work relating to the processing of rice in lieu of payment receivable, the income started accruing to the assessee. 3.3 The learned CIT(A) has failed to notice that the assessee company had claimed expenditure in respect of the rice processing work carried out and the same was allowed in the assessment. In fact only the profits/gains which had not been offered was brought to tax and added to the total income. It is submitted here that the fact that the person making the payment to the assessee had not claimed the same as expenditure in his/its accounts or had not made the payment would not in any way absolve the assessee from the bounded duty to offer the income accrued during the P.Y. And that the assessing officer was rightly estimated the income from the processing activity relying on the previous year's rates charged by the assessee. 20.2 The Ld.DR presented the case on the above lines and supported the order of the AO. Per contra, the Ld.AR relied on the order of the Ld.CIT(A), which is extracted in para 20, supra. 20.3 We heard the rival submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in charging the processing charges. We find that the basis adopted by the AO for charging the processing charges is one of the approved methods and it is reasonable. However, the AO has allowed 75% of such processing charges as reasonable expenditure for earning this income, in the assessment made for assessment year 2006-07, which has been approved by us, supra. During this assessment year, the AO has charged ₹ 1,09,05,600/- towards processing charges, 75% of such receipts works out to ₹ 81,79,200/-. Since, the AO has already allowed ₹ 32,22,437/- under the head salaries, wages and bonus, adopting the same basis, we direct the AO to allow ₹ 49,56,763/- (81,79,200 32,22,437) towards reasonable expenditure for earning the income U/s.57. Subject to this relief to the assessee, the Revenue s appeal is allowed. 21. In the result, the assessee s appeal for the assessment year 2004-05 2006-07 are partly allowed and the appeal for assessment year 2007-08 is dismissed. The Revenue s appeal for assessment year 2007-08 is partly allowed. Order pronounced in the court on the 9th September, 2019 at Chennai. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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