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TMI Blog2022 (1) TMI 649X X X X Extracts X X X X X X X X Extracts X X X X ..... here is no reference that in purchase and sale of computer batteries there could be profit margin is of 17%. Whenever any estimation is required to be made guess-work would always be there. But such guess-work should be in consonance with overall profit shown by the assessee. It has achieved a turnover of more than ₹ 102 crores, and returned income of ₹ 4.13 crores. These factors are also to be kept in mind. Taking into consideration all these facts, we estimate disallowance out of these bogus purchase at 7%. In other words, 7% of the alleged bogus purchase of ₹ 1,56,78,802/- will be disallowed. This ground taken by the Revenue is rejected; whereas the ground of appeal taken by the assessee is partly allowed. Determination of the amounts require to be disallowed out of sale promotion expenses - CIT-A partly confirming the disallowance - HELD THAT:- The assessee is a well organized business house, who has achieved turnover of more than ₹ 102 crores; meaning thereby, its affairs must have been managed in professional manner, where complete details might have been maintained. The assessee has given no details to whom such gift items were given. It is ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le objects or not, in their own cases, and if they failed to utilize funds for their objects, then their charitable status could be cancelled. Registration under section 12AA could be cancelled as per the procedure contemplated in section 12AA(3) of the Act. The funds which were not used for objects of the Trust, that can be brought to tax under section 13(3) of the Act. A perusal of the scheme of Income Tax Act, it would reveal that once the donation has been made, the donee is not under obligation to keep a track of the donation, and nothing left in his hand which can ask for return of these amounts. There is no such provision provided in the Act. If a duly recognized institution, for the purpose of receiving donation, somebody makes donation and then how the donation would be bogus, if the donee failed to use it for the object which has been made eligible to receive the donation. How the donor could dictate terms after donations are made ? No donee will be under influence of the donor for arranging its affairs. Therefore, there is fallacy in the approach of the ld.AO as well as the ld.CIT(A) for disallowing the donations made by the assessee - CIT(A) has rightly deleted the disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ountant Member For the Assessee : Shri Hardik Vora, Advocate For the Revenue : Shri Mukesh Kumar Sharma, Sr.DR ORDER PER RAJPAL YADAV, VICE-PRESIDENT In assessment year 2012-13 assessee and the Revenue are in cross-appeal against order of the ld.CIT(A) dated 28.4.2016; whereas in the asstt.Year 2014-15, the assessee alone has impugned order of the ld.CIT(A)-6 dated 20.9.2018. The issues in all these three appeals are inter-connected with each other, and therefore, we heard them together and deem it appropriate to dispose of them by this common order. 2. First we take appeal of the Revenue in the Asstt.Year 2012-13 i.e. ITA No.1778/Ahd/2016. However, if any ground is found to be interconnected with any other issues agitated in rest of two appeals, then same will be taken up together. 3. Ground No.1 raised by the Revenue reads as under: The ld.CIT(A) has erred in law and on facts by restricting the disallowance of ₹ 3,48,64,200/- in respect of provision of batteries to ₹ 59,16,200/- without properly appreciating the facts of the case. This ground is inter-connected with ground no.1 of the assessee s appeal i.e. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cal configuration of UPS, stabilizer and site net working it was required to replace batteries. The assessee has placed on record details of battery replacement as per annexure-2 before the AO. It has also submitted copies of agreement exhibiting as to why batteries were required to be replaced. 7. The ld.AO has gone through all these details. He has disallowed claim of the assessee for two reasons, viz. it is a contingent liability which is to be materialized after five years, and secondly, he has verified purchases of batteries, and out of total purchases, he found batteries purchased to the extent of ₹ 1,56,78,802/- from five entities were not genuine. Vendors have not been confirmed sales made to the assessee. On the basis of this reasoning, the ld.AO disallowed the claim of the assessee. 8. Dissatisfied with finding of the AO, the assessee carried the matter in appeal before the ld.first appellate authority. The assessee had raised two fold of submissions. In the first fold of submissions, it was contended that provision made by it was in consonance with Accounting Standard 29 issued by the Institute of Chartered Accountants of India. It has made this provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has turnover of more than ₹ 102 crores. It has made provision for replacement of batteries qua the computers sold by it. The clause of the agreement on which it was required to replace has been taken note by the ld.CIT(A), and such clauses read as under: Battery replacement The battery should be replaced as per requirement. However, at the end of the 5th year of warranty, replacement of battery with a new one is compulsory. The another purchase order received by appellant from CORE Projects Technologies Ltd. for A.Y.2012-13 has been perused and the warranty clause in second page of the order is reproduced as under:- Warranty 5 Years onsite warranty on the UPS and Batteries from the date of installation and commissioning. Battery make as specified by GIL should be, Quanta/CSB/Global Yuasa. Battery should be replaced as per requirement during the contract period definitely again at the time of handing over the project (End of the Contract period). Replacement of all batteries at end of the project is mandatory. Vendor has to maintain record serial Nos. of repla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... failure of batteries and compulsorily at the end of 5'n year, i.e. for the sale made in F.Y.2009-10, batteries to be replaced in F.Y.2013-14, and provision made by it is included in the sales shown as revenue income and hence not in the nature of contingent liability. Accordingly, based on the facts of the case stated above after carefully examining additional evidence furnished before Hon'ble ITAT this office, ₹ 1,41,73,283/- is allowed as genuine provision for expenses, included in sale. Balance of ₹ 2,25,717/- has taken as income by the assessee in A.Y. 2014-15. This bifurcation of two amounts, i.e. actual spent out of total provision surplus, viz.1,41,73,283 2,24,717, aggregating to ₹ 1,43,99,000/- is mentioned, statistically. Out of this, assessee has already got relief of ₹ 40,37,933/- from Ld. CIT(A) and accordingly the remaining disallowance of ₹ 1,03,67,0677- is taken as allowed by this order. 14. Hon ble Supreme Court has explained the position of law on admissibility of a provision regarding warranty and relevant discussion is worth to note, which reads as under: A provision is a liability which can be measured ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of provision on the second reasoning assigned by the AO. The AO found that the assessee failed to prove its purchases; because out of total purchases, suppliers to the extent of ₹ 1,56,78,802/- could not confirm the sales made to the assessee. The ld.CIT(A) was satisfied to the extent that batteries have been replaced, and the assessee must have earned extra profit by procuring batteries from sources A , and probably bill from sources B . There is no dispute with regard to the quantitative details of batteries. Dispute relates to source of procurements. The assessee placed on record documentation with regard to five parties who denied the sales to the assessee. According to the ld.CIT(A) profit element to the extent of 17% must have been earned by the assessee in this modus operandi. For harboring this plea, the ld.CIT(A) has made reference to order of the ITAT in the case of Vijay Proteins Ltd., 58 ITD 428 (ITAT-Ahd) wherein profit estimated at 25% of the purchase made where details were found to be bogus. On the other hand, stand of the assessee is that its turnover is of ₹ 102 crores. The alleged extra profit be estimated at the same rate on the alleged bogus puc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not disputed if 2.38% is being estimated as undue profit earned by it from purchase of these batteries amounting to ₹ 1.56 crores. Calculation by the ld.CIT(A) are not based on any scientific formula or any evidence. There is no reference that in purchase and sale of computer batteries there could be profit margin is of 17%. It is also pertinent to note that whenever any estimation is required to be made guess-work would always be there. But such guess-work should be in consonance with overall profit shown by the assessee. It has achieved a turnover of more than ₹ 102 crores, and returned income of ₹ 4.13 crores. These factors are also to be kept in mind. Taking into consideration all these facts, we estimate disallowance out of these bogus purchase at 7%. In other words, 7% of the alleged bogus purchase of ₹ 1,56,78,802/- will be disallowed. This ground taken by the Revenue is rejected; whereas the ground of appeal taken by the assessee is partly allowed. 17. Ground No.2 in the Revenue s appeal for the Asstt.Year 2012-13, and ground no.2 in the assessee s appeal for the Asstt.Year 2012-13, and ground no.3 in the appeal of the assessee for the Asstt.Ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es from the records of proceedings that the expenditure in question had been incurred in the normal course of the business of the appellant and the same had been incurred for the purpose of business of the appellant. The expenditure has not been proved to be bogus through some independent inquiry. However, at the same time, it is not open and shut case for appellant because the perusal of the Assessment Order indicates that the appellant had not furnished the names of the persons to whom the gift/presentation articles had been given. In the course of the appellant proceedings, the AR of the appellant submitted that disclosure of name of the parties would adversely affect the business of the appellant and in order to keep the business secret, the appellant was compelled to withhold the names. The AR further pleaded that nondisclosure of the name would not operate to disentitle the appellant's legitimate claim of expenditure which has been genuinely incurred on account of sales promotion which is directly related to the business of the appellant. On the other hand, it would also not entitle the appellant to get relief in total. 5.1.1 Taking into consideration the totality ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no details to whom such gift items were given. It is case of the assessee that in order to maintain secrecy of its line of business, it is not incumbent upon him to disclose personal details of recipients. It has shown bills and vouchers for the purchases. All the details have been maintained scientifically. An estimation of disallowance could only be made, if there are some lapses in the detailed maintained by the assessee. The reasoning given by the AO is altogether different which did not meet approval of the CIT(A). Thereafter, the ld.CIT(A) ought to have not made adhoc disallowance. The ld.CIT(A) was not justified in partially confirming the disallowance. After perusal of the finding of the ld.CIT(A), we do not find any error in it to the extent the ld.CIT(A) has deleted the disallowance. There is no justification to interfere in his order. 23. However, we are of the view that there is no reason to disallow expenditure to the extent of ₹ 9.50 lakhs on an adhoc basis. We delete this disallowance also. Thus, we allow the grounds of appeal raised by the assessee, and reject ground of appeal raised by the Revenue. 24. As far as Asstt.Year 2014-15 is concerned, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no justification to disallow the sales promotion expenditure. We delete the disallowance. In the result, the ground of appeal taken by the assessee in the Asstt.Year 2014-15 is allowed. 26. Ground No.2: In ITA No.1778/Ahd/2016 as well as ground no.1 in ITA No.2324/Ahd/2018. 27. The grievance of the Revenue in its appeal for the Asstt.Year 2012-13 is that the ld.CIT(A) has erred in deleting disallowance of ₹ 55 lakhs in respect of donation to political parties under section 80GGC of the Act. The grievance of the assessee in its appeal for the Asstt.Year 2014-15 is that the ld.CIT(A) has erred in confirming the disallowance of ₹ 5,86,32,892/- which was claimed as deduction under Chapter VIA in respect of donation given to political party and charitable institutions. 28. Brief facts of the case are that in the Asstt.Year 2012-13, the assessee has given donation of ₹ 55 lakhs to Rashtriya Komi Ekta Party ( RKE party for short) which is duly registered with Election Commission of India. Similarly, for the Asstt.Year 2014-15, the assessee has given donation to the following parties. Sr. No. Name of the Donee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, the conditions to claim deduction u/s.80GGC are fully complied. Having regard to the totality of the facts and circumstances of the case, I hold that the AO is in error in disallowing claim for deduction on account of contribution to political party which is as per the provisions of section 80GGC. Accordingly, the disallowance made by the AO is hereby deleted and the AO is directed to allow the same. This ground no.5 is allowed. 30. With assistance of the ld.representatives, we have gone through the record. In the Asstt.Year 2012-13, the assessee has given donation to only one party i.e. RKE whereas in the Asstt.Year 2014-15, it has given donation to three political parties viz. RKE , Akhil Bhartiya Hindu Mahasabha, Lok Janshakti Parity. Apart from these three political parties, it has further given donation to three charitable institutions vis. Shri Sadvichar Parivar Jankalyan Pashuraksha Charitable Trust, Mahavir Shubha Sandesh Jivdaya Panjrapole Charitable Trust, Shri Vardhaman Jjivdaya Panjrapole Charitable Trust. Let us take note of section 80GGC: 80GGC. In computing the total income of an assessee, being any person, except local authority and every art ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailed to prove, whether ultimately, the donees have used these monies ? The AO has devoted a lot of energy in conducting such inquiry as to how these monies have been incurred by the recipients. To our mind, the authorities below have misdirected themselves. The donees are taxable entities in themselves. If they misused their position and failed to conduct themselves in regard with requirement of law, then this amount could be taxable in his hands. Act nowhere put obligation upon the donor to ensure how the funds are utilized by the donee towards their objects. Due to this reason, we are of the view that whole angle of inquiry at the end of the AO is misdirected. It is for the AO to verify whether these charitable institutions have utilized funds for charitable objects or not, in their own cases, and if they failed to utilize funds for their objects, then their charitable status could be cancelled. Registration under section 12AA could be cancelled as per the procedure contemplated in section 12AA(3) of the Act. The funds which were not used for objects of the Trust, that can be brought to tax under section 13(3) of the Act. A perusal of the scheme of Income Tax Act, it would revea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 14,29,324/-. Qua this expenditure, it was contended by the assessee that the expenses relatable to South Africa trip by the partner Shri Kiri Patel are only of ₹ 12,99,100/- and not ₹ 14,29,324/-. The remaining expenditure of ₹ 1,30,224/- is relatable to the expenditure incurred on travelling within India for the purpose of business. 38. After considering complete details, as discussed in the assessment order, we delete a sum of ₹ 1,30,224/- out of total disallowance made by the AO at ₹ 17,74,045/- which has been confirmed by the ld.CIT(A) also. We find that the assessee failed to demonstrate that rest of the expenditure disallowed by the AO was also incurred for the purpose of business. No doubt the total expenditure claimed by the assessee is only 0.85% of the total revenue earned by it. It has demonstrated a turnover of ₹ 91.40 crores, and it has claimed travelling expenses of only ₹ 77.33 lakhs; but still if it is unearthed by the AO that in certain expenditure element of personal nature is involved, then such expenditure cannot be allowed to the assessee. Therefore, this ground of appeal is partly allowed. 39. Groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue of closing stock. It is submitted that this method of valuing closing stock is followed by the assessee year after year, and the same was accepted by the department. The instance pointed out by the ld.AO in respect of stock of computer table/chair for calculation of understatement of closing stock is misleading, because, the said items have different sizes, models and having different purchase price, and therefore, it cannot be simply averaged by total number of items in question. On the other hand, the ld.DR supported orders of the Revenue authorities. 42. We have heard both the parties, considered submissions made and also perused the orders of Revenue authorities. While going through the items of closing stock furnished before the Revenue authorities indicated that there were about 22 closing stock items in the list. The assessee has in fact valued the stock on the basis of estimated realizable value. No doubt estimation of net realizable value should be based on some evidence. It has claimed by the assessee that it is following consistently valuation of inventory at cost or net realizable value whichever is less. Out of total stock, the ld.AO has chosen computer table/ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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