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TMI Blog2012 (4) TMI 809X X X X Extracts X X X X X X X X Extracts X X X X ..... anufacturing agricultural implements, combines, tractors and autos. During the course of assessment proceedings, the Assessing Officer noted that the assessee has debited Misc. Expenses of Rs. 11,95,980/- to the profit and loss account. The assessee stated that payment of Rs. 10,00,000/- out of Rs. 11,95,980/- was made to State Bank of Indore for removal of ban for financing Standard Tractors. The assessee also stated that amount of Rs. 10,00,000/- was made to enter into a MOU (Memorandum of Understanding) with State Bank of Indore for financing Standards-make Tractors. The relevant extracts of the same are reproduced as under:- 1 The proposal of payments of Rs. 7,35 lacs upto 31st March 2006 and balance payment of Rs. 10.00 lacs on or before 31st May 2006 is acceptable. 2. If the Bank/Branch recovers the outstanding amount from the Borrowers/Dealers/Bank Officer, then the amount so recovered from them would be first appropriate for recovery of outstanding loan, interest outstanding, and legal expenses etc. and remaining amount if any may be refunded to M/s Standard Combines Pvt Ltd. (Tractor Division) Barnala (Punjab). 3. As soon as we received Rs. 7.35 lacs, we shall r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... direct dealing with the State Bank of Indore. He further observed that the assessee had no liability to pay any amount to the bank. The Assessing Officer also stated that the assessee had paid the amount of Rs. 10 lacs to the bank which was the amount of loan not recoverable from its customers. The Assessing Officer also took the view that the expenses claimed by the assessee was not incurred wholly and exclusively for the purpose of business. The Assessing Officer also held that the payment of this kind is against the principles of accounting as somebody else s liability has been discharged by the assessee as has been claimed as business expenditure which is not allowable. The Assessing Officer also held that the payments in question was in the nature of penalty imposed by the bank for lifting of ban imposed on financing of the assessee s tractors. He, therefore, disallowed the amount of Rs. 10 lacs claimed by the assessee as misc. expenses. 5. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the CIT(A). Before the CIT(A), the assessee took the following line of arguments:- i) That the Assessing Officer erred in disallowing a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neries Ltd. (2004) 266 ITR 170 (Mad) viii) CIT V. Madras Refineries Ltd. (2004) 266 ITR 170 (Mad) 7. The CIT(A) allowed the claim of the assessee observing as under:- 4.2 I have gone through the assessment order, written as well as oral arguments of the Ld. counsel for the assessee and judgment of the Tribunal and High Court cited by the appellant and find force in the arguments of the Ld. counsel of the appellant, that the payment of Rs. 10 lacs to State Bank of Indore is not in the nature of penalty and is for the business needs of the appellant to maintain depleting sale on account of non finance. I am inclined to accept the contention of the appellant that the payment is fully covered u/s 37(1) and all the five conditions stated in the sections are satisfied, therefore, the addition of Rs. 10 lacs made by the Assessing Officer is not sustainable and is directed to be deleted. 8. We have heard the rival submissions and have also perused the materials available on record. Smt. Jaishree Sharma Ld. DR heavily relied upon the order of the Assessing Officer. Shri D.K.Goyal, Ld. Counsel for the assessee reiterated the submissions made before the lower authorities. In our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... needs of the assessee to maintain depleting sales on account of non finance, and the payment is fully covered u/s 37(1) of the Act. In our view, there is no merit in the alternative submission of the Ld. DR that the payment was in the nature of capital expenditure being of enduring benefit and hence disallowable. We, therefore, do not see any merit in this ground and accordingly the same is dismissed. 11. Ground No.2 of the appeal reads as under:- 2. In the facts and circumstances of the case, the ld. CIT(A) has erred in allowing relief on account of investment in building , wthout appreciating that the valuation determined by the District Valuation Officer was correct and also, was the actual investment made by the assessee. 12. While framing the assessment, the Assessing Officer made an addition of Rs. 4,05,759/- on account of difference in investment in building as shown by the assessee and as determined by the DVO. On appeal, the CIT(A) deleted the addition observing that the Courts have held difference upto 10% to 15% have to be ignored and no addition is called for. The CIT(A) observed that actual expenditure based on proper vouchers amounting to Rs. 1,11,68,000/- h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iating that in view of the clear cut finding of the Tax auditor to the contrary, it was for the assessee to lead an evidence to substantiate its claim that the payment was not in the nature of penalty and having failed to do so, under the provisions of section 114 of the Indian Evidence Act, the AO was justified in taking an adverse view. 15. Vide ground Nos. 3 and 4 of the appeal, the Revenue has challenged the action of the CIT(A) in deleting the disallowance of Rs. 1,43,324/- made on account of sales tax debited to the profit and loss account. The Assessing Officer treated the amount of Rs. 1,43,324/- paid by the assessee to J K Sales Tax Authorities as penalty. The Assessing Officer asked the assessee as to why was the penalty levied and why should not be added back. In this regard, the assessee submitted as under:- We had sold two no. of tractor vide Invoice 23 dated 28.3.2006 in the state of Jammu Kashmir to M/s Meera Motors (P) Ltd., Jammu amounting to Rs. 5,96,226/- the same tractors were intercepted by J K Sales Tax Authorities at Kathua and charged to tax u/s 67(5) of the J K Sales Tax Act at the maximum rate of tax of 24% applicable in the state of J K subject t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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