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TMI Blog2020 (3) TMI 210X X X X Extracts X X X X X X X X Extracts X X X X ..... ded to reject the books of account on the basis of surmises for which assessee has not been provided any opportunity to rebut the same; that when there was no valid ground for AO to reject the books of account u/s 145 (3), the question of estimating the gross profit @ 5% of the gross receipts does not arise. AO has not recorded any categoric finding that the accounts produced by the assessee were defective or incomplete rather rejected the same eon the hyper-technical ground that certain details have not been brought on record. AO by recklessly rejecting the books of account proceeded to estimate the income by applying profit @ 5% of the gross receipt at 76,94,395/- whereas assessee company has already assessed its income from business at 1,03,37,625/- (before depreciation). So, AO for the reason best known to him has assessed the income of the assessee substantially less than the returned income. CIT (A) has rightly and validly accepted the books of account and set aside the estimation of gross profit @ 5% and proceeded to examine the sustainability of the various allowances claimed by the assessee independently. Allowable expenditure u/s 37(1) on its new project - HELD THAT:- Bar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue has not disputed the fact that supplier has not supplied the goods which is apparent from the copy of account of supplier to whom payment had otherwise been made through banking channel, no addition can be made on this account. So, we are of the considered view that the addition is not sustainable and ordered to be deleted, however subject to verification by the AO. Computation of carry forward losses and unabsorbed depreciation qua the year under assessments by the AO and confirmed by the ld. CIT (A) on the ground that the same has not been correctly computed - HELD THAT:- Since it is a factual mistake pointed out by the ld. AR for the assessee, AO is directed to correctly compute the carry forward losses and unabsorbed depreciation to arrive at the logical assessment. Depreciation on Innova car - HELD THAT:- When the books of account have been accepted by the ld. CIT (A) and order of ld. CIT (A) has held to have been sustainable by the Bench as per findings in the preceding paras, depreciation cannot be disallowed because vehicle running and its maintenance expenses have been duly charged to the accounts. Moreover, when vehicle is proved to be purchased from the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned CIT(A) erred in confirming the order of A.O. who erred in not allowing MAT Credit paid in the earlier years." ITA No.3473/Del./2015 FOR AY : 2010-11 (Assessee's Appeal) "1. THAT in the facts and circumstances of the case, the Learned CIT(A) uphold the addition made by A.O. that rent paid was excessive to the extent of ₹ 6,17,580/- and disallowable u/s 40A(2)(b) of the Income Tax Act. 2. THAT in the facts and circumstances of the case, the Learned CIT(A) erred in confirming the order of A.O. who erred in making an addition on account of depreciation on car of ₹ 10,04,258/-. 3. THAT in the facts and circumstances of the case, the Learned CIT(A) erred in confirming the disallowance on account of interest paid to NBFC, M/s Kotak Mahindra Primus Ltd. of ₹ 3,97,817/-. 4. THAT in the facts and circumstances of the case, the Learned CIT(A) erred in confirming the order of A.O. who erred in not adjusting the Brought Forward Losses/Unabsorbed Depreciation from earlier years. 5. THAT in the facts and circumstances of the case, the Learned CIT(A) erred in confirming the order of A.O. who erred in correctly computing the Carried Forward loss and Unabso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, the Ld. CIT(A) has erred on facts and in law in holding that the expenditure of ₹ 2,26,14,880/- allocated to project Edexcel, UK is revenue in nature ignoring the fact that when the amount so allocated was capitalized as per Companies Act, 1956, it is not allowable as revenue expenditure under Income Tax Act, 1961." ITA No.3574/Kol./2015 AY: 2010-11 (Revenue's appeal) 1. On the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law, in not upholding the decision of AO rejecting the book results u/s 145(3) of the I.T. Act in spite of the fact that the books of accounts are not complete. 2. On the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law, in not upholding the decision of AO rejecting the book results u/s 145(3) of the I.T. Act in spite of the fact that there were unverifiable sundry creditors. 3. On the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law, in not upholding the decision of AO rejecting the book results u/s 145(3) of the I.T. Act in spite of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e orders passed by the ld. CIT (A), both the assessee as well as the Revenue have come up before the Tribunal by way of filing the present cross appeals. 8. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case. 9. Undisputedly, the ld. CIT (A) has annulled the order of the AO rejecting the books of account u/s 145 (3) of the Act and estimating the profit @ 5% of the gross receipts, which action of the ld. CIT (A) has been challenged by the Revenue for both the AYs 2009-10 & 2010-11. GROUNDS NO.1, 2 & 3 OF REVENUE'S APPEAL FOR AY 2009-10 GROUNDS NO.1, 2, 3 & 4 OF REVENUE'S APPEAL FOR AY 2010-11 10. Perusal of para 3.2 of the assessment order goes to show that the AO proceeded to reject the books of account u/s 145 (3) of the Act on the ground that despite repeated opportunities, assessee has failed to produce the books of accounts and supporting evidence. However, at the very outset, in para 1 of the assessment order, AO specifically recorded the fact that, "books of account along with bills and vouch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted the books of account without specifying as to whether any of the above three conditions was satisfied. Furthermore, instead of passing order u/s 144 of the Income Tax Act, the A.O, even after rejecting the books of account, passed the order u/s 143(3) which is fallacious. If the A.O wanted to reject the books of account he should have given certain specific instances which could have proved that the accounts of the appellant are incorrect/incomplete. Besides, since the appellant company has been regularly following mercantile system of accounting, it has not violated provision of Section 145(1) of the Income Tax Act. As none of the conditions for rejection of books, mentioned in section 145 were satisfied, I hold that A.O should not have rejected the books of account in the appellant's case by making sweeping remarks and without examining voluminous documents submitted by the appellant during the course of assessment proceedings." 12. So, the aforesaid reasons recorded by the ld. CIT (A) for accepting the books of account/documents brought on record by the assessee go to prove inter alia that the details of major expenses incurred by the assessee along with vouchers have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances, we are of the considered view that ld. CIT (A) has rightly and validly accepted the books of account and set aside the estimation of gross profit @ 5% and proceeded to examine the sustainability of the various allowances claimed by the assessee independently. So, Grounds No.1, 2 & 3 of Revenue's appeal for AY 2009-10 and Grounds No.1, 2, 3 & 4 of Revenue's appeal for AY 2010-11 are determined against the Revenue. GROUNDS NO.4, 5 & 6 OF REVENUE'S APPEAL FOR AY 2009-10 17. The assessee claimed an amount of ₹ 2,26,14,880/- being expenditure on its new project (Project 'EDEXCEL'). AO after considering the reply filed by the assessee disallowed the expenses of ₹ 2,26,14,880/- u/s 37 (1) of the Act on the ground that the assessee has failed to prove incurring of such expenses. However, ld. CIT (A) deleted these expenses. 18. For proceeding further, we would like to extract the expenditure for Project EDEXCEL claimed by the assessee for ready perusal as under :- Sr. No. Particulars Allocation of Expenditure to Edexcel 1. Salary 10,222,952 2. Rent Amritsar 2,67,894 3 Rent-BAB Tower 249,489 4 Rent Baroda Office 536,692 5 Rent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch tests in India. The assessee company had in an effort to show improved results to its shareholders/potential investors/PES etc. allocated various costs to such EDEXCEL Project and included the same as part of fixed assets in the Balance Sheet under Company Law. Treatment by the assessee, for company law purpose, an asset, cannot be change the expenditure." 24. When we examine the functions being performed by EDEXCEL organisation of UK having been accredited to award 'O' and 'A' level certificate issued by Cambridge University again it is part and parcel of the business carried out by the assessee company, thus has been proved on record that EDEXCEL has been hired by the assessee to promote and conduct such tests in India. 25. Bare perusal of the assessment order goes to prove that except for repeating the language of section 37(1) of the Act, AO has not written a word as to how these expenditure claimed by the assessee are not business expenditure. 26. In AY 2008-09, Revenue itself vide order dated 22.02.2012 passed by the ld. CIT (A) in Appeal No.76/GGN/2010-11 thoroughly examined these expenditure incurred on Project EDEXCEL and held the same of revenue in nature follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to its director is highly excessive. 30. Ld. CIT (A), on the other hand, after examining the lease deed of the premises in question and premises rented out by Mrs. Baweja of Greenwood Plaza of the adjoining premises for AY 2011-12 which was at the rent of ₹ 85 per sq.ft., assessed the rent of the premises in question @ ₹ 85 per sq.ft. and restricted the addition to the extent of ₹ 6,17,580/- each u/s 40A(2)(b) of the Act for AYs 2009-10 and 2010-11. 31. Except for the facts that the premises at Greenwood Plaza had covered area of 1858 sq.ft. and open terrace of 462 sq.ft and the fact that new premises is in better location, no new facts have been brought on record by the assessee. So, we are of the considered view that ld. CIT (A) has determined the rent in the light of the facts and circumstances of the case by examining the lease deed of two premises taken on rent by the assessee company itself, which is carrying out the same business in the two premises. So, we find no scope to interfere into the findings returned by the ld. CIT (A). So, ground no.1 in assessee's appeal for AYs 2009-10 & 2010-11 is determined against the assessee. GROUND NO.2 OF ASSESSEE'S A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d has been offered to tax, addition thereof cannot be made during the year under assessment. So, it is ordered to be deleted subject to verification by the AO. 35. However, so far as disallowance of ₹ 4,88,497/- on account of sundry creditors, namely Indoor & Exterior is concerned, ld. AR for the assessee contended that supplier had moved to Australia and the amount was not paid to him and as such, amount capitalized could be reduced as expenditure incurred leading to reduction in cost of the same. When the Revenue has not disputed the fact that supplier has not supplied the goods which is apparent from the copy of account of supplier to whom payment had otherwise been made through banking channel, no addition can be made on this account. So, we are of the considered view that the addition of ₹ 4,88,497/- is not sustainable and ordered to be deleted, however subject to verification by the AO. Consequently, Grounds No.3 & 4 of assessee's appeal for AY 2009-10 are determined in favour of the assessee. GROUND NO.5 OF ASSESSEE'S APPEAL FOR AY 2009-10 GROUNDS NO.4 & 5 OF ASSESSEE'S APPEAL FOR AY 2010-11 36. Assessee has challenged the computation of carry forward l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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