Income Tax Appellate Tribunal - Ahmedabad
Akar Laminators Limited ,, Ahmedabad. vs Assessee on 1 August, 2014
1 ITA No.858, 927/AHD/2005
ITA No.1113 & 1198/A/2004
ITA No.1026/A/2007.
A Years 2001-02, 00-01 & 2002-03
.
IN THE INCOME TAX APPELLATE TRIBUNAL "D" BENCH, AHMEDABAD
(BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL CHATURVEDI, A.M.)
Sr. No. I. T. A. No. Assessment Year Appeal By
1 858/AHD/2005 2001-02 Department
2 927/AHD/2005 2001-02 Assessee
3. 1113/AHD/2004 2000-01 Assessee
4. 1198/AHD/2004 2000-01 Department
5. 1026/AHD/2007 2002-03 Department
Assistant Commissioner of Vs. Akar Laminators Limited,
Income Tax, Circle-1, 1st Floor, Trade Centre,
Kendriya Pratyaksha Bhavan, Opp. Stadium Bath,
Nr. Panjara Pole, Stadium Six Roads,
Ambawadi, Ahmedabad.
Ahmedabad.
(Appellant for Sr.No.1,4 & 5) (Respondent for Sr. No.2 & 3)
PAN: AABCA 2778 H
Appellant by : Mr.Vimalendu Verma, CIT (DR)
Respondent by : Mr.Sunil H.Talati
आदे श)/ORDER
(आ Date of hearing : 24-06-2014 Date of Pronouncement : 01 -08-2014 2 ITA No.858, 927/AHD/2005 ITA No.1113 & 1198/A/2004 ITA No.1026/A/2007. A Years 2001-02, 00-01 & 2002-03 .
PER BENCH,
1. These 5 appeals are against the order of CIT(A)-V, Ahmedabad dated 30.01.2004, 06.12.2004 and 08.12.2006 for A.Ys. 2000-01 to 2002 to 2003 respectively, of the 5 appeals 3 appeals are filed by the Revenue and 2 appeals are filed by the Assessee.
2. Before us, at the outset both the parties submitted that various grounds in all the appeals are identical and therefore the submission made by them in one year would be applicable to the other years also and therefore all the appeals can be heard together. We therefore proceed to hear all the appeals together for the sake of convenience and are being disposed of by this consolidated order.
We proceed with the facts for AY 2000-01 (ITA No 1113 & 1198/AHD/2004)
3. The assessee is a limited company stated to be engaged in the business of manufacturing of packing materials and trading activities. It filed its return of income for AY 2000-01 on 30-11-2000 declaring total income of Rs Nil. The case was selected for scrutiny and thereafter the assessment was framed u/s 143(3) vide order dated 28.3.2003 and the total income was determined at Rs 2,91,82,710/-. Aggrieved by the order of AO, assessee preferred appeal before CIT(A). CIT(A) vide order dated 30.1.2004 granted partial relief to the Assessee. Aggrieved by the aforesaid order of CIT(A), both the Revenue and Assessee are in appeal before us.
The grounds raised by the Assessee in ITA No 1113/AHD/2004 reads as under:-
1. That the learned Assessing officer has erred in law and facts by passing the assessment order. The assessment proceeding is bad in law and without jurisdiction and therefore the order passed by the learned AO should be quashed.
2. That the learned AO has erred in law and facts by disallowing Rs. 524421/-of Hire Charges paid to Blue Bends Finance Limited. It should be allowed in full.
3. That the learned AO has erred in law and facts by disallowing Rs. 1586540/- deferred revenue expenditure incurred. It should be allowed in full as per law.
4. That the learned AO has erred in law and facts by disallowing Rs.23627765/- of rebates and reversal of claims. It should be allowed in full.3 ITA No.858, 927/AHD/2005
ITA No.1113 & 1198/A/2004 ITA No.1026/A/2007. A Years 2001-02, 00-01 & 2002-03 .
5. That correct tax is to be calculated and proper credit of pre-paid taxes is to be given and thereafter-proper interest thereon under section 234B and 234C of the Act is to be charged.
The first ground of appeal was not pressed and therefore not adjudicated.
The second ground of appeal relates to disallowing Rs.5,24,421/- on hire charges paid to Blue Bell Finance Ltd.
4. AO noticed that Assessee had paid hire charges of Rs 5,24,421/- to Blue Bell Finance Ltd for plant and machinery. AO noticed that while deciding the issue in AY 1995- 96 A.O had made inquiries and due to non-existence of plant and machinery the A.O had disallowed the depreciation on the said plant and machinery and also disallowed the payment of hire charges as being non genuine. For similar reasons and following the earlier years order, the AO in the present year disallowed the payment.
5. Aggrieved by the order of AO, the assessee preferred appeal before CIT(A). CIT(A) held that the facts in the current year are identical to that of AY 1999-2000. He therefore following the order of AY 1999-2000 confirmed the order of AO. Aggrieved by the order of CIT(A) the assessee is now in appeal before us.
6. Before us, the Ld. A.R. submitted that the disallowance similar to the present disallowance was made by the AO in AY 1999-2000 against which the Assessee had preferred appeal before Hon'ble ITAT. Hon'ble ITAT vide order dated 9th Oct. 2006 (ITA No 3763/Ahd/2002) had remitted back the matter to the file of AO to decide the matter on the basis of reference petition filed in High Court. He placed on page 30 of the paper book the order of Hon'ble Tribunal. He therefore urged that since the matter in the current year is identical to that of AY 1999-2000, the matter may be remitted back to the file of AO with similar directions. The Ld. D.R. did not seriously object to the submission made by ld. A.R.
7. We have heard the rival contentions and perused the material on record. The factual position is that in AY 1995-96 the AO on the basis on enquiry made, held the transaction 4 ITA No.858, 927/AHD/2005 ITA No.1113 & 1198/A/2004 ITA No.1026/A/2007. A Years 2001-02, 00-01 & 2002-03 .
entered by the Assessee with Blue Bell Finance Co. Ltd. to be non genuine. The AO in the present year, relying on the observation of his predecessor disallowed the payment in A.Y. 1999-2000. Against the order of AO, Assessee had preferred appeal before H'ble Tribunal. Hon'ble Tribunal vide order dated 9th Oct 2006 (ITA No 3763/Ahd/2003) held as under:
"3. We find the issue to be considered on the basis of the outcome of the Court decision, which is pending before the Gujarat High Court in Reference No Company Petition No.74 of 1998.We,therefore, set aside the issue back to the file of the A.O. to decide the matter on the basis of the outcome of the aforesaid Reference Petition. We direct accordingly."
8. Before us, both the parties have admitted that the facts in the year under appeal are identical to that of AY 1999-2000. We therefore, following the order of the co-ordinate Bench of Tribunal for A.Y. 1999-2000 remit the matter back to the file of the AO with similar directions. In result this ground of the Assessee is allowed for statistical purposes.
The third ground of appeal relates to disallowing Rs.15,86,540/- being deferred revenue expenditure.
9. During the course of assessment proceedings A.O. observed that Assessee had in the books of accounts claimed deferred revenue expenditure of Rs.15,86,540/- but in the computation the expenses was claimed as revenue expenditure. The assessee submitted that the deferred revenue expenses incurred were purely of revenue in nature and not of capital nature. The contention of the assessee was not acceptable to the AO in view of the fact that in the Balance Sheet, Schedule Q-note X(d) it was stated that deferred revenue expenditure was incurred prior to commencement of commercial production. The AO therefore concluded that the said expenditure is not a revenue expenditure and has not been incurred during the year under consideration and therefore he disallowed it.
10. Aggrieved by the order of AO, Assessee carried the matter in appeal before the CIT(A). CIT(A) after considering the submissions of the A.R upheld the disallowance made by AO by holding as under:
5 ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004 ITA No.1026/A/2007. A Years 2001-02, 00-01 & 2002-03 .
" 6.3. After going through the facts of the case, I find that the contention of the appellant is not acceptable because in the balance sheet schedule Q-note X(d) it is clearly mentioned that deferred revenue expenditure is incurred prior to commencement of commercial production. From this it is clear that the said expenditure is not revenue expenditure and not incurred during the year under consideration. Hence I find no reason to go against the findings of the A.O. This ground of appeal is therefore rejected."
11. Before us, the Ld. A.R. contended that the expenses incurred are revenue in nature and have been incurred in the normal course of business. He further, submitted that the expenditure is not of capital in nature and therefore the same should be allowed. On the other hand the Ld. D.R. relied on the order of the authorities below.
12. We have heard the rival contentions and perused the material on record. The AO in its order has given a finding that the expenditure is not of revenue in nature and have not been incurred during the year. The Ld. A.R. could not bring on record any tangible material to rebut the findings of the AO. In view of these facts, we do not find any reason to interfere with the order of CIT(A) and therefore uphold the order of the CIT(A). Accordingly this ground of the Assessee is dismissed.
13. The next ground of appeal relates to the disallowing Rs.2,36,27,765/- of rebates and reversal of claims.
14. During the course of assessment proceedings the AO noticed that the assessee had claimed Rs.2,36,27,765/- as an expenditure on account of claims, rebate and reversal pertaining to transactions entered by it during the earlier years. Assessee furnished the details and offered explanation. The AO was of the view that since the assessee was following mercantile system of accounting it should have made provision for these expenses in the accounts for the relevant years. He was therefore of the view that the expenditure pertained to the earlier years. AO further observed that the assessee has failed to establish as to how the amount of claim crystallized during this year and in view of the fact that no evidence was submitted to support its claims, AO held the expenditure to be pertaining to earlier years and hence Rs.2,36,27,765/- was disallowed.
6 ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004 ITA No.1026/A/2007. A Years 2001-02, 00-01 & 2002-03 .
15. The assessee carried the matter in appeal before the CIT(A). CIT(A) upheld the order of AO by holding as under:-
"8.3. After going through the facts of the case, findings of the A.O. and the submission of the A.R., it it found that the appellant's claim is that it could not realize sales proceeds hence it has claimed it as unrealized sales-claim in the year under appeal. This is a fresh claim this year. Since the sales relate to just one or two years before the year under appeal, appellant should have shown the same as debtors and after that it could write off. It appears that the appellant made no efforts for its recovery. The accounts of the parties who are reputed companies are also running and write off cannot be made for a running account. It seems very much impractical to conclude that these sales proceeds will not be realized in future. Appellant could not discharge its onus that these are bad debts. Therefore, I am satisfied with the findings of the A.O. and hold that the claim of the appellant is not tenable. The addition is confirmed."
16. Against this confirmation of disallowance by CIT(A), the assessee is now in appeal before us.
17. Before us the Ld. A.R. submitted that the details of the amounts reversed in the accounts and placed it on page 71 of the paper book. It was submitted that the amount reversed represents the liquidated damages and freight charges reversed which were booked as sales in earlier years and were also offered to tax in the respective years. The Ld. A.R. further submitted that since the Assessee has written off the amount in its books of accounts, it has complied with the requirements of the Act and therefore the same should be allowed as deduction as bad debts. He further relied on the decision of Apex Court in the case of TRF Ltd. Vs CIT (2010) 323 ITR 397 (SC).
18. The Ld. D.R. on the other hand submitted that the sales relate to just one or two years old, the accounts of the parties from whom the amount has been written off are reputed parties and are running account, the Assessee does not seem to have made efforts for the recovery. He further submitted that the Assessee could not discharge its 7 ITA No.858, 927/AHD/2005 ITA No.1113 & 1198/A/2004 ITA No.1026/A/2007. A Years 2001-02, 00-01 & 2002-03 .
onus to prove the debts to be bad. In view of these facts, the Ld. D.R. submitted that the AO was right in disallowing the amount.
19. We have heard the rival submissions and perused the material on record. The undisputed fact is that the amount which have been written off were shown as sales in earlier years and were also offered to tax in the respective years. The fact that in the year under appeal, the assessee has debited its Profit and loss account and the amount has been written off has not been disputed by the Revenue. The H'ble Apex Court in the case of T.R.F. Ltd Vs CIT (supra) has held that after 1st April 1989, it is not necessary for the assessee to establish that the debt has in fact become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. In view of the aforesaid facts and respectfully following the decision of Apex Court cited hereinabove, we are of the view that since the assessee has written off the amount in its Profit and loss Account, the assessee is entitled to its deduction. Accordingly, we delete the addition made by the AO. In the result this ground of the Assessee is allowed.
20. The next ground of appeal is against the charging of correct interest after considering the prepaid taxes and interest u/s 234B, and 234C. Since charging of interest is consequential to the total income to be determined, the Assessing Officer is directed to recalculate the interest while giving effect to this order.
21. In the result, the appeal of the assessee is partly allowed.
ITA No.1198/Ahd/2004 - A. Y. 2000-01 (Revenue's Appeal).The grounds raised by the Revenue reads as under:-
1. The ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.
1,89,68,093/- holding it as deferred revenue expenditure against revenue expenditure claimed by the assessee.
2, The ld. CIT(A) has erred in deleting the disallowance of interest of Rs. 7,96,520/-
3. The ld. CIT(A) has erred in deleting the disallowance of interest of Rs. 5,16,625/- made on account of interest expenditure relating to exempt income.
8 ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004 ITA No.1026/A/2007. A Years 2001-02, 00-01 & 2002-03 .
22. The first ground of appeal is regarding confirming of deletion of Rs.1,89,68,093/- being term loan interest holding it as deffered Revenue expense as against the Revenue expense claimed by the assessee.
23. A.O noticed that assessee in its books of accounts had deferred certain expenses of Rs.1,89,68,093/- mostly by capitalizing them. The assessee had claimed the said expenditure in the statement of income under the head "Term loan interest capitalized for expansion (under capital work in progress but claimed as revenue expenditure). For its allowability as deduction, the assessee submitted that its claim of deduction be allowed following the decision of CIT(A) in earlier years. The assessee also relied on the decision of Ahmedabad Bench of ITAT in the case of Vadilal Dairy International Ltd reported in ITA No.500/Ahd/1997 dated 16-9-1998 and Gujarat High Court decision in the case of CIT vs. Core Health Ltd. reported in 251 ITR 61. The A.O. rejected the claim of the assessee and added Rs 1,89,68,093/- to the total income.
24. Aggrieved by the order of AO, assessee carried the matter in appeal before the CIT(A). The CIT(A) after considering the submissions of the A.R. deleted the addition by holding as under:-
"4.3. I have gone through the facts of the case, assessment order and submission of the appellant. It is seen that A.O. has disallowed only on the ground that similar disallowance has been deleted by the CIT(A) but the department has preferred second appeal in ITAT against the CIT(A)'s order and the same is pending for judgment. In view of the facts of this case and the order of CIT(A)-I, Ahmedabad the ITAT's decision in the case of Vadilal Dairy International Ltd. and Gujarat High Court's decision in the case of Core Health Ltd., addition of Rs.1,89,68,093/- on account of rejection of claim of revenue expenses is deleted."
25. Against the order of CIT(A), the Revenue is now in appeal before us. Before us the Ld. D.R. submitted that the assessee had capitalized the expenses but claimed the said expenditure as revenue expenditure in its return of income. He thus submitted that in the 9 ITA No.858, 927/AHD/2005 ITA No.1113 & 1198/A/2004 ITA No.1026/A/2007. A Years 2001-02, 00-01 & 2002-03 .
aforesaid circumstances, the AO was right in disallowing the claim of the assessee. He thus urged that the order of the AO be upheld.
26. On the other hand the Ld. A.R. submitted that the CIT(A) had deleted the addition made by the AO by relying on the decision of the Gujarat High Court in the case of Core HealthCare (supra). He further submitted that the decision of the Gujarat High Court has been approved by H'ble Apex Court and reported in 298 ITR 194 (SC). He thus urged that the order of the CIT(A) be upheld.
27. We have heard rival contentions and perused the material on record. The factual matrix of the case is that the assessee had treated the expenses as deferred revenue expenditure in the books of accounts but claimed as revenue expenditure while filing the return of income. CIT(A) deleted the addition made by the AO by relying on its decision in the preceding year, ITAT decision in the case of Vadilal Dairy International Ltd. and Gujarat High Court's decision in the case of Core Health Care (supra). The Ld. D.R. before us could not controvert the above facts nor has brought any binding contrary decision in its support. In view of these facts, we uphold the action of CIT(A) and accordingly dismiss this ground of the Revenue.
The second ground raised by the Revenue is regarding confirmation of deletion of Rs.7,96,520/- being interest on advances given to employees.
28. During the course of assessment proceedings the A.O. observed that the assessee has made advances of Rs.41.39 lakhs to its employees on which no interest has been charged while on the other hand it has been paid huge amount as interest on borrowed funds. The assessee replied that the advances have been made in ordinary course of business and hence the interest thereon should not be disallowed. The AO was of the view that the assessee has failed to establish exactly the purpose for which advances have been made and how same are related to business. In view of this and relying on the provisions of section 36(1)(iii) of the Act, he disallowed a sum of Rs.7,45,020/- being calculated @ 18% on Rs.41.39 lakhs as interest paid by the assessee holding it to be for the purposes other than business. The AO also observed that assessee had advanced Rs 2.85 lacs on which 10 ITA No.858, 927/AHD/2005 ITA No.1113 & 1198/A/2004 ITA No.1026/A/2007. A Years 2001-02, 00-01 & 2002-03 .
no interest was charged. The AO held that the assessee had failed to establish the purpose for which advances have been made and how the same are related to business. In view of this and relying on the provisions of section 36(1)(iii) of the Act, he disallowed a sum of Rs.51,500/- being calculated @ 18% on Rs.2,85,000/- as interest paid by the assessee for purposes other than business. Thus the total disallowance of Rs 7,96,520/- was made by the AO.
29. Aggrieved by the order of AO, Assessee carried the matter in appeal before the CIT(A). CIT(A) after considering the submissions of the appellant deleted the addition by holding as under :-
"7.3. I have gone through the findings of the A.O. and the facts narrated by the Ld. Counsel on behalf of the appellant. It is submitted by the appellant that the advances are old and no such disallowances have been made and that the A.O. has failed to establish that the interest bearing fund has been utilized for non business purposes. It is submitted by the appellant that it had ample fund at its disposal from which the advances have been made."
The Madras High Court in the case of CIT vs. Hotel Savera (1998) 585, 591, 592 has delivered that for disallowance of the interest, or a part of it, paid on money borrowed for the business purposes, it is essential that a clear finding should be given by the authority concerned that the borrowed money or part of it has been utilized for non-business purposes. Where the assessee has both, his own money as well as borrowed money, a presumption can arise that the money lent, even free of interest, came out of his own funds.
In view of the above, the A.O. is not justified in disallowing the interest, without any specific findings. The A.O. is therefore directed to allow the claim of the interest paid in full as claimed. The disallowance and addition of Rs.7,96,520/- on this point is deleted."
30. Aggrieved by the decision of the CIT(A), the Revenue is now in appeal before us. Before us, the Ld. D.R. submitted that the Assessee has failed to establish the purpose for which the advance was granted and how it related to business. He therefore urged that in such circumstances the order of the A.O. be upheld. On the other hand the Ld. A.R. 11 ITA No.858, 927/AHD/2005 ITA No.1113 & 1198/A/2004 ITA No.1026/A/2007. A Years 2001-02, 00-01 & 2002-03 .
submitted that it had ample funds at its disposal from which the advances were made. It was further submitted that the advances were given in earlier years and no disallowance has been made in earlier years. He thus relied on the order of CIT(A).
31. We have heard the rival contentions and perused the material on record. The facts are that the A.O. had made additions by estimating the interest rate at 18% on the amount outstanding. The AO has not brought any material on record to prove that the advance is not for the purpose of business. The Hon'ble Madras High Court in the case of CIT vs. Hotel Savera (1998) 585, 591, 592 has held that for disallowance of the interest, or a part of it, paid on money borrowed for the business purposes, it is essential that a clear finding should be given by the authority concerned that the borrowed money or part of it has been utilized for non-business purposes. In the present case no such finding has been given by the AO. The finding of CIT(A) could also not be controverted by the Ld. D.R. In view of the these facts, we find no reason to interfere with the order of the CIT(A). We accordingly uphold the order of CIT(A) and dismiss this ground of the Revenue.
32. The last ground of appeal raised by the Revenue is regarding deleting the disallowance of interest of Rs.5,16,625/- made on account of interest expenditure relating to exempt income.
33. The A.O. observed that the assessee has shown dividend income of Rs.29,81,475/- which was claimed as exempt u/s. 10(33) of the Act. The assessee submitted that the dividend income is received on shares of Sharp Industries Ltd. The assessee was asked to furnish the expenses incurred for earning the dividend income and asked to explain as to why interest paid to earn dividend income should not be disallowed. Assessee submitted that the shares of Sharp Industries Ltd. have been acquired mainly out of non-interest bearing fund, realizations from business and therefore there is no expenditure for earning dividend income. The reply of the Assessee was not found acceptable to the AO and he therefore disallowed Rs.5,16,625/- calculated @ 18% on Rs.28,70,139/- (cost of investment) being the interest paid on funds as per provision of Section 14A of the Act.
12 ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004 ITA No.1026/A/2007. A Years 2001-02, 00-01 & 2002-03 .
34. Assessee carried the matter in appeal before the CIT(A). CIT(A) after considering the submissions of the Assessee deleted the addition by observing as under:-
"9.3. After going through the facts of the case I find that the appellant company has sufficient interest free funds to the tune of Rs.52.74 crores against the total investment to the tune of Rs.11.31 crores and the A.O. has failed to establish the nexus that the interest bearing fund has been utilized for the purpose of investments under consideration, there is no question of disallowance of interest and there is no effective new investment in shares and securities during the year, but there is net reduction in the investment to the tune of Rs.2.77 crores and there is no such disallowance in earlier year. Since the A.O. could not prove that the relevant investments is out of interest bearing borrowed funds, I hold that the A.O. is not justified in estimating the interest expenses for earning dividend income. I therefore delete the addition made of Rs.5,16,625/- on this count. This ground of appeal is allowed."
35. Aggrieved by the action of CIT(A), the Revenue is now in appeal before us. Before us, the Ld. D.R. submitted that the assessee has earned exempt income and as per the provisions of section 14A, the expenditure incurred has to be disallowed. He submitted that even the H'ble Bombay High Court in the case of Godrej Boyce vs. DCIT 328 ITR 71 (Bom) (supra) has held that though Rule 8D is applicable from AY 2008-09 but prior to AY 2008- 09, reasonable expenditure needs to be disallowed. He thus relied on the order of the A.O. On the other hand the Ld. A.R. submitted that the provisions of rule 8D does not apply to the year under appeal. Further, to disallow an expenditure u/s 14A, a finding of the expenditure has to be given. In the absence of such finding no disallowance can be made u/s 14A. The A.R. further submitted the investment in shares were made in F.Y. 1996-97 and 1997-98 and in the year of investments, Assessee was having sufficient own funds. He also placed on record the copy of the account on pages 27 to 29 of the paper book. He therefore submitted that in the present case no disallowance u/s 14A can be made. He thus relied on the order of CIT(A).
36. We have heard the rival contentions, perused the material on record. The undisputed fact is that the Assessee has received dividends on shares which have been 13 ITA No.858, 927/AHD/2005 ITA No.1113 & 1198/A/2004 ITA No.1026/A/2007. A Years 2001-02, 00-01 & 2002-03 .
claimed as exempt u/s 10(33). The investment in shares have been made in FY 1996-97 and 1997-98. CIT(A) has given a finding that the Assessee was having interest free funds to the tune of Rs 52.74 crores against the total investment of Rs 11.34 crores and thus the interest free funds were in excess of the investments. He also noted that the AO has failed to establish nexus and prove that the interest bearing funds have been used to make investments and there has been no effective investments in the current assessment year. These findings of CIT(A) could not be controverted by Ld. D.R. In view of these facts, we find no reason to interefere with the order of CIT(A). We accordingly uphold the order of the CIT(A) in deleting the addition made by AO. Thus this ground of the Revenue is dismissed.
37. In the result the appeal of the Revenue is dismissed.
We now proceed with ITA No. 858/AHD/2005 for A.Y. 2001-02
38. The only effective ground of appeal raised by the Revenue in this appeal reads as under:-
"1. The Ld. CIT (A) has erred in law and on facts in deleting the additions on account of
(i) Prior period adjustment of Rs.1,01,26,985/-
(ii) Interest free advances of Rs.7,50,420/-
(iii) Interest on capital asset of Rs.2,27,64,818/-
Deletion of prior period adjustments:-
39. During the course of assessment proceedings AO observed that the assessee has claimed the expenses which were incurred in earlier years. AO was of the view that those expenses were not allowable in the year under appeal as the same should have been claimed in respective years to which it pertained. The expenses were in the nature of hire charges, legal charges, purchases etc. The A.O. also noted that since the assessee was following mercantile system of accounting and receipts and expenses are accounted on 14 ITA No.858, 927/AHD/2005 ITA No.1113 & 1198/A/2004 ITA No.1026/A/2007. A Years 2001-02, 00-01 & 2002-03 .
accrual basis, therefore the expenses claimed by the assessee were not allowable in the year and he accordingly disallowed the expenses of Rs 1,01,26,985/-.
40. Aggrieved by the order of the A.O. assessee carried the matter in appeal before the CIT(A). After considering the submissions of the Assessee, CIT (A) deleted the addition by holding as under:-
"(2)(iv) I have considered the submissions made by the Ld. Authorised Representative and have gone through the assessment order. The copy of computation of total income for the year makes it clear that the appellant company has itself disallowed prior period expenses of Rs.1,01,26,985/- and by disallowing the amount again there will be a double addition. The A.O. is therefore directed to confirm the fact and delete impugned disallowance."
41. Being aggrieved by the above decision of CIT(A), the Revenue is now in appeal before us.
42. Before us, the Ld. D.R. relied on the order of lower authorities. The Ld. A.R. on the other hand reiterated the submissions made before AO and CIT(A). He further submitted that while computing the taxable income, the assessee had suo moto disallowed the expenses and added to the total income. He placed on record the computation of total income at page 2 of the paper book. He thus submitted that the disallowance once again by the AO results into double disallowance. He therefore urged that the order of CIT(A) be upheld.
43. We have heard the rival contentions and perused the material on record. The factual position that emerges is that while computing the total income, the assessee had suo moto made disallowance and added Rs 1,01,26,985/- to the total income. The AO had again disallowed the aforesaid expenditure while passing the assessment order. The act of AO in disallowing again the prior period expenditure amounts to double addition of the same expenditure. CIT(A) has also given a finding that the action of A.O. of disallowing the expenditure which has already been disallowed by the assessee results into double 15 ITA No.858, 927/AHD/2005 ITA No.1113 & 1198/A/2004 ITA No.1026/A/2007. A Years 2001-02, 00-01 & 2002-03 .
addition. These facts have not been controverted by the Revenue. In view of these facts, we find no infirmity in the order of CIT(A) and therefore no interference is called for on this ground. This ground of the Revenue is therefore dismissed.
44. The second part of first ground of appeal is regarding the deletion of Rs.7,50,000/- on account of interest free staff advances.
45. On verification of Schedule J of the Balance Sheet, AO noticed that assessee has advanced money to staff which included advances to the following persons.
Mr. A. I. Ayer Rs. 10,00,000
Mr. N.Swamy Rs. 31,69,000
46. A.O. was of the view that the amount of advances was much higher than the usual advances given to other staff. AO also noted that Assessee did not furnish any reason for advancing huge advances to the two employees. He therefore calculated interest @ 18% on the amount advanced and added Rs.7,50,420/- to the income.
47. Aggrieved by the above action of the A.O., the assessee carried the matter in appeal before CIT(A). CIT(A) after considering the submissions of the A.R. deleted the addition by holding as under:-
" 5(iii) I have considered the submissions made by the Ld. Authorised Representative and have gone through the facts on records. It is seen that the A.O. has made the disallowance simply stating that the advances are much higher than the usual advances given to other staff and further that the assessee has not furnished any reasons for such huge advances and has made disallowance calculated at the rate of 18% on such advances. The A.O. has not brought out any cogent reason for the disallowance. Since on the similar fact, the disallowance of Rs.7,96,520/- was deleted by my predecessor in the appellant's own case in the earlier assessment year agreeing with such finding, the disallowance of Rs.7,50,420/- is directed to be deleted."
48. Aggrieved by the order of CIT(A), Revenue is now in appeal before us.
16 ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004 ITA No.1026/A/2007. A Years 2001-02, 00-01 & 2002-03 .
16. Before us, the Ld. D.R. submitted that the assessee has not justified its action of giving such huge amount of loan to its employees. In these circumstances, the amount advanced to the employees cannot be considered for being used for the purpose of business and therefore the A.O. had rightly disallowed the interest and accordingly the action of A.O. should be upheld.
49. The Ld. A.R. on the other hand submitted that the amount was advanced to employees in the normal course of business. Similar disallowances were made by the A.O. in the earlier assessment years in the past but the same were deleted by CIT(A). He therefore urged that the action of the CIT(A) be upheld.
50. We have heard the rival contentions and perused the material on records. We find that CIT(A) while deleting the addition has noted that disallowance was made by the AO in the past but the same were deleted by his predecessor. Before us, Revenue could not controvert the findings of CIT(A). Further, Revenue has not brought any material on record to demonstrate that whether against the order of CIT(A) of earlier years the matter was taken by Revenue before Tribunal and that the matter was decided in its favour by the Tribunal. The Revenue has also not been in a position to demonstrate any tangible reason for disallowance. In view of the aforesaid facts, we find no reason to interfere with the order of CIT(A). Thus this ground of Revenue is dismissed.
51. The third part of 1st ground of appeal is with respect to deletion of Rs.2,27,64,818/- on account of interest on Capital asset.
52. During the course of assessment proceedings A.O. noticed that the assessee has debited interest and financial charges of Rs.11,29,53,733/- on various term loans taken by assessee from ICICI, IFCI, IDBI etc. AO noticed that during the year, the assessee has made additions to plant and machinery of Rs.12,08,95,156/- in April, 2000. It was stated by the assessee that no interest on loans has been capitalized to fixed assets during the year. The assessee also had not claimed depreciation on machinery so purchased. The assessee has shown advances of Rs.55,76,046/- for capital goods under the head "Capital work in progress for capital goods" and pre-operative expenses to be capitalized. The AO 17 ITA No.858, 927/AHD/2005 ITA No.1113 & 1198/A/2004 ITA No.1026/A/2007. A Years 2001-02, 00-01 & 2002-03 .
calculated interest @18% on the expenditure of purchase of new machinery and on the advance for capital goods as being of capital in nature and accordingly held the interest of Rs.2,27,64,818/- as not deductible u/s. 36(1)(iii) of I.T. Act and disallowed the same out of interest expenses.
53. Assessee preferred appeal against this disallowance before CIT(A). After considering the submissions of the A.R., CIT(A) allowed the appeal of the assessee by holding as under :-
" 6.(iii) I have gone through the facts of the case and the submission made by the appellant on behalf of the appellant. I find that addition made on the similar ground have been deleted by the CIT(A) in appellant's case in earlier years. Having regard to the finding of my predecessor and the facts and circumstances of the case in the earlier years and also considering the legal authority relied upon by the appellant, the disallowance/addition of Rs.2,27,64,818/- is ordered to be deleted."
54. Aggrieved by the order of CIT(A), Revenue is now in appeal before us.
55. Before us, the ld. D.R. submitted that the interest expense has been rightly disallowed by the AO in view of the fact that the interest was on account of the addition made to the capitals assets and therefore the interest was of capital in nature and therefore urged that the order of the AO be upheld. The A.R. on the other hand reiterated the submissions made before AO and CIT(A) and further submitted that on identical facts, the CIT(A) in earlier years has allowed the deduction and therefore submitted that CIT(A) has rightly deleted the addition. The ld. A.R. also relied on the order of the Hon'ble Supreme Court in the case of DCIT vs. Core Health Care Ltd.(2008) 298 ITR 194 (SC).
56. We have heard the rival contentions and perused the material on record. We find that CIT(A) while deleting the addition has noted that similar additions were made by the AO in earlier years and the same were deleted by his predecessor. Before us, the Ld. D.R. could not controvert the findings of CIT(A). Before us, Revenue has also not brought any material on record to demonstrate that in earlier year, against the order of CIT(A), any 18 ITA No.858, 927/AHD/2005 ITA No.1113 & 1198/A/2004 ITA No.1026/A/2007. A Years 2001-02, 00-01 & 2002-03 .
appeal was preferred by Revenue where the order of AO was upheld. We further find that in the case of DCIT Vs Core Health Care Ltd (supra) the Hon'ble Apex Court has held us under:
"36(1)(iii) of the Income tax Act,1961, has to be read on its own terms: it is a code by itself. It makes no distinction between money borrowed to acquire a capital asset or a revenue asset. All that the section requires is that the assessee must borrow capital and the purpose of the borrowing must be for business which is carried on by the assessee in the year of account. Unlike section 37 which expressly excludes an expense of a capital nature, section 36(1)(iii) emphasises the user of the capital and not the user of the asset which comes into existence as a result of the borrowed capital. The Legislature has, therefore, made no distinction in section 36(1)(iii) between "capital borrowed for a revenue purpose" and "capital borrowed for a capital purpose". An assessee is entitled to claim interest paid on borrowed capital provided that the capital is used for business purpose irrespective of what may be the result of using the capital which the assessee has borrowed. "Actual cost" of an asset has no relevancy in relation to section 36(1)(iii). The proviso inserted in section 36(1)(iii) by the Finance Act, 2003, with effect from April 1, 2004, will operate prospectively.
Held, accordingly, that the assessee was entitled to deduction under section 36(1)(iii) prior to its amendment by the Finance Act, 2003, in relation to money borrowed for purchase of machinery even though the assessee had not used the machinery in the year of borrowing.
Decision of the Gujarat High Court in Deputy CIT vs. Core Health Care Ltd., (2001) 251 ITR 61 affirmed on this point."
57. The present appeal before us is with respect to AY 2001-02. Hon'ble Apex Court in the case of Core Health Care (supra) has held that the proviso inserted in section 36(1)(iii) by the Finance Act 2003 with effect from April 1, 2004, will operate prospectively. The Hon'ble Apex Court has further held that an assessee is entitled to claim interest paid on borrowed capital provided that the capital is used for business purpose irrespective of what may be the result of using the capital which the assessee has borrowed. In view of the totality of the facts and respectfully following the decision of Hon'ble Apex Court in the case of Core Health Care (supra), we feel that the CIT(A) has rightly deleted the addition made 19 ITA No.858, 927/AHD/2005 ITA No.1113 & 1198/A/2004 ITA No.1026/A/2007. A Years 2001-02, 00-01 & 2002-03 .
by the AO. We accordingly uphold the action of the CIT(A) and thus dismiss this ground of appeal of Revenue.
58. In the result, the appeal of the Revenue is dismissed.
Now we take up the appeal of the Assessee being ITA No.927/Ahd/2005 for AY 2001-02.
The grounds raised by the assessee reads as under:
1. That the learned CIT(A) ought to have accepted the returned income and notes attached to the return of income and ought to have allowed our claims made in the return of income and order passed by the learned AO under section 144 of the Act is against the law and facts of the case and therefore the addition made therein should be deleted in full.
2. That the learned CIT(A) has erred in law and facts by not allowing the claim of, claims, rebate & reversal of claim of Rs.8,04,87,441/-. The claim, rebate & reversal claim is correct, as these are not recoverable and therefore the learned AO should be directed to allow the said claim in full.
3. That the learned CIT(A) has erred in law and facts by not allowing Rs.2,25,73,649/-
out of interest expenses on investment. Since the appellant has sufficient interest free funds, no part of interest can be disallowed and therefore the learned AO should be directed to allow the said claim in full.
4. That the learned CIT(A) has erred in law and facts by not allowing Rs.39,50,678/-of our claim of sundry balance written off. Since the amount has been written off and pertains to business and income thereon has been reflected, no part of such expenditure can be disallowed and the learned AO be directed accordingly
5. That the learned CIT(A) has erred in law and facts by not allowing Rs.6 Lacs out of legal and profession fees expenses. Since the expenditure is for the purpose of business and its accounts are audited and wherein it has not held as capital expenditure payment, no part of legal and professional fees can be disallowed and the learned AO be directed accordingly.
6. That the learned CIT(A) has erred in law and facts by not allowing the Hire Charges payment to Blue Blends Finance Ltd. of Rs.5,24,421/-.Since the said expenses are for the purpose of the business and full available details in this regard have been furnished, no part of it should be disallowed and accordingly the learned AO should be directed to allow the same in full.
7. That the learned CIT(A) has erred in law and facts by disallowing the Traveling expenses of Rs.3,20,160/-, being 1/10th of total traveling expenditure. Since the entire 20 ITA No.858, 927/AHD/2005 ITA No.1113 & 1198/A/2004 ITA No.1026/A/2007. A Years 2001-02, 00-01 & 2002-03 .
expenditure is for the purpose of business and its accounts are audited, no part of traveling expenditure can be disallowed and the learned CIT(A) be directed accordingly.
59. Ground No.1 is regarding challenging of order passed u/s.144 of the Act.
60. AO in the assessment order has noted that he had issued notice u/s 143(2) on 18.7.2002 and was duly served on the assessee. Thereafter notices were issued and served u/s 143(2) and 142(1) on various occasions. The assessee was also directed to produce books of accounts. The assessee had failed to comply with the directions of the A.O. As the assessee had failed to comply with the directions of the AO, the AO completed the assessment u/s 144 of the Act. Before us, the Assessee had now challenged the order passed u/s 144 of the Act.
61. Before us, the Ld AR submitted that the order passed by AO u/s 144 of the Act was bad in law and therefore the same be quashed. The Ld. DR on the other hand pointed to the findings of AO and submitted that due to the non-compliance to the notices by the Assessee, AO had rightly framed the assessment u/s 144. He thus supported the order of AO.
62. We have heard the rival submissions and perused the material on record. From the assessment order it is seen that AO has noted to have issued notices to Assessee on various occasions but the Assessee failed to comply with the same. Before us, Asseessee has not brought any material on record to prove the compliance of notices issued by AO. In view of these facts we are of the view that the AO had rightly passed order u/s 144 and we accordingly dismiss this ground of appeal.
Ground No.2 relates to the confirming disallowance of Rs.8,04,87,441/- on account of claims, rebate and reversal of claim.
63. During the course of assessment proceedings, the A.O. noticed that the assessee company has claimed Rs.8,04,87,441/- as expenses on account of claims, rebate and reversal pertaining to transactions entered by it during the earlier years. The assessee was 21 ITA No.858, 927/AHD/2005 ITA No.1113 & 1198/A/2004 ITA No.1026/A/2007. A Years 2001-02, 00-01 & 2002-03 .
requested to furnish full details of the expenses. The assessee furnished details like names and partywise amounts which have been reproduced on page 5 & 6 of the Assessment order. The AO was of the view that the assessee has not furnished any reasons regarding claims, rebates, discount or the nature of expenses. The assessee also failed to furnish the details and explain as to how the amount of claim crystallised during this year. The AO observed that similar issue also come up during the course of assessment proceedings for A.Y. 2000-01 and the same was rejected. Following the findings given in the order of AY 2000-01, the assessee's claim for deduction was denied and disallowances of Rs.8,04,87,441/- was made to the income.
64. Aggrieved by the order of AO, assessee preferred appeal before the CIT(A). CIT(A) upheld the order of the AO by holding as under :-
" 3(iii) I have considered the submissions of the Ld. A.R. and have gone through the facts of the case. It is clear from the facts discussed in the assessment order that the assessee has not been able to furnish proper details with evidence regarding the claim. It is seen from the facts discussed in the appellate order in the appellant's case for A.Y. 2000-01 vide CIT (A)-V, Ahmedabad's order dated 30-1- 2004 that the appellant's claim is that it could not realize sale proceeds of earlier years. Hence it had claimed it as unrealized sale claimed during the year. Such claim stands rejected by my predecessor stating that the sales relate to just one or two years before the year in appeal when such claim is made for the first time and that the appellate appears to have made no efforts for its recovery. Further, that the concerned parties are reputed companies having running accounts with the assessee and as such write off can be made for running accounts. Further that, it seemed very impractical to conclude that the sale profit would not be realized in future. Since the appellant could not discharge its onus that these were bad debts, my predecessor did not find the claim of the appellant as tenable. I find that the facts in respect of the claim are similar in this year, as well. Since the appellant has not discharged its onus to prove the claim allowable, finding of the A.O. is considered reasonable. This ground of appeal is therefore rejected and the addition of Rs.8,04,87,441/- confirmed."
65. Aggrieved by the order of CIT(A), the assessee is now in appeal before us.
22 ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004 ITA No.1026/A/2007. A Years 2001-02, 00-01 & 2002-03 .
66. Before us the Ld. A.R. submitted that the details of the amounts reversed in the accounts are placed at page 40-70 of the paper book. It was submitted that the amount reversed apart from freight charges and liquidated damages mainly represents the discounts given to the parties in earlier years which were booked as sales in earlier years and offered to tax in the respective years. The Ld. A.R. further submitted that since the Assessee has written off the amount in its books of accounts, it has complied with the requirements of the Act and therefore the same should be allowed as deduction as bad debts. He further relied on the decision of Apex Court in the case of TRF Ltd. Vs CIT (2010) 323 ITR 397 (SC).
67. On the other hand the Ld. D.R. submitted that the sales relate to just one or two years old, the accounts of the parties from whom the amount has been written off are reputed parties and are running account, the Assessee does not seem to have made efforts for the recovery and the Assessee could not discharge its onus to prove the debts to be bad. In view of these facts, the Ld. D.R. submitted that the AO was right in disallowing the amount.
68. We have heard the rival submissions and perused the material on record. It is assessee's submission that the amounts which have been written off were shown as sales in earlier years and were also offered to tax in the respective year. In the year under appeal, the assessee has debited its Profit and Loss account and the amount was written off. These facts have neither been disputed nor have been controverted by Revenue. The Hon'ble Apex Court in the case of T.R.F. Ltd Vs CIT (supra) has held that after 1st April 1989, it is not necessary for the assessee to establish that the debt has in fact become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. In view of the aforesaid facts and respectfully following the decision of Apex Court, we are of the view that since the assessee has written off the amount in its Profit and Loss account, the assessee is entitled to its deduction. Accordingly, we direct the deletion of the addition made by the AO. In the result this ground of the Assessee is allowed.
23 ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004 ITA No.1026/A/2007. A Years 2001-02, 00-01 & 2002-03 .
The third ground of appeal relates to the confirming of disallowance of Rs.2,25,73,649/- on account of interest expenses on investment.
69. During the course of assessment proceedings A.O. noticed that assessee has made major investment in the shares of Vishnu Vijay Packages Ltd., Sharp industries Ltd., and Sheth Plastomers Ltd. which are assessee's subsidiary companies and group companies. The assessee had also made purchases of Rs.12,70,79,584/- and Rs.5,28,82,005/- from Vishnu Vijay Packages Ltd. and Sharp Industries Ltd respectively who are the specified persons u/s. 40A(2)(b) of the I.T. Act and to whom the assessee has provided huge finance in the form of investment and for which the assessee has borrowed from banks and paid huge interests. According to AO, the shares were purchased to earn dividend income which is exempt u/s. 10(33) of the I.T. Act. The AO was of the view that assessee has taken huge term loans and other loans from ICICI, IFCI, IDBI and other banks and has debited interest of Rs.11,29,53,733/-. Thus according to AO, the assessee has made investment out of interest bearing fund taken from banks. According to AO, the basic requirement for claiming deduction u/s. 36(1)(iii) of I.T. Act for interest expenses is that the amounts must have been borrowed and utilized for business purposes. Since the assessee has diverted interest bearing funds to its subsidiary company without charging interest, AO was of the view that the interest payments claimed by the assessee to the extent of fund diverted interest-free to subsidiary company cannot be treated as business expenses and the same was not deductible u/s. 36(1)(iii) of I.T. Act. Further since the assessee has deployed interest bearing fund for earning exempt income. In view of provisions of section 14A of I.T. Act, the interest expenses on investment in shares were also not deductible. The AO calculated interest of Rs 2,25,73,649 (@ 18% on investment of Rs.12,54,09,139/- in shares of group companies and specified persons u/s. 40A(2)(b) of the Act) and disallowed it out of total interest payment and added to the income.
70. Being aggrieved by the order of A.O. the assessee carried the matter in appeal before the CIT(A). CIT(A) upheld the order of the AO by holding as under:
24 ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004 ITA No.1026/A/2007. A Years 2001-02, 00-01 & 2002-03 .
" 4 (iii) I have considered the submissions made by the Ld. A.R. and have gone through the assessment order passed by the A.O. It is seen that the appellant company had made investments in shares amounting to Rs.12,54,09,139/- and the major investments is in the shares of its own subsidiary/ group companies. Further, the investment has been made from interest bearing borrowed funds from the banks and the appellant has debited huge interest expenses to the tune of Rs.11,29,53,733/-.Thus, the facts on record clearly shows that the appellant has diverted interest bearing funds to its subsidiary companies without charging interest or having any other gain to it. The A.O. has reasonably pointed out the nexus between the interest bearing borrowed funds and the non-interest bearing investment with subsidiary companies of the appellant. I therefore, agree with the findings of the A.O. that the claim of interest made on the funds diverted interest free to the subsidiary companies of the appellant, cannot be treated as business expense and hence not deductible u/s. 36(1)(iii) of the I.T. Act. Since the appellant has utilized the interest bearing funds for earning exempted income, the interest expenses for investment in shares are also not deductible in terms of section 14A of the I.T. Act. The disallowance made by the A.O. of Rs.2,25,73,649/- is therefore, confirmed."
71. The assessee being aggrieved by the decision of CIT(A) is now in appeal before us.
72. Before us the Ld. A.R. urged that the Assessee has not diverted the funds borrowed in the form of term loans from financial institutions to acquire the shares of subsidiaries. He further urged that that no dividend was received during the year under consideration and therefore no disallowance can be made u/s 14A. He further submitted that the investments were made in the past out of own funds and not borrowed funds. He therefore submitted that no disallowance can be made in the present case. He also relied on the decision in the case of Hiren Aluminium Ltd. vs. DCIT in ITA No.1259/Ahd/2005 dated 20-3-2009.
73. On the other hand, the Ld. D.R. submitted that as per the provisions of section 14A, the expenditure incurred has to be disallowed. Even the Bombay High Court in the case of Godrej Boyce Mfg. Co.Ltd. vs. DCIT 328 ITR 81 (Bom.) has held that though Rule 8D is applicable from AY 2008-09 but prior to AY 2008-09, reasonable expenditure needs to be disallowed. He thus relied on the order of the lower authorities.
25 ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004 ITA No.1026/A/2007. A Years 2001-02, 00-01 & 2002-03 .
74. We have heard the rival submissions and perused the material on record. Before us, ld. A.R. has submitted that the investments were made in earlier years and in the year the investments were made, Assessee was having interest free funds and no interest bearing funds have been used for making investments. Before us, the Assessee has not placed any material on record to demonstrate the availability of interest free funds or the cash flow statement in its support. We also find that the neither A.O nor CIT(A) has given any finding with respect to availability of interest free funds in the year of investments. In such circumstances, we feel that the issue needs to be re-examined at the end of A.O. We therefore remit the issue to the file of A.O to decide the issue de novo in the light of the contentions made by the Assessee and the decision relied by him and thereafter decide the issue as per law. Needless to state that A.O shall grant adequate opportunity of hearing to Assessee. Thus this ground is allowed for statistical purposes.
The next ground of appeal relates to the confirming of disallowance of Rs 39,50,678/- on account of sundry balance written off.
75. The A.O. found that the assessee has debited various expenses under the head office expenses which included debits of Rs.39,50,678/- on account of sundry balance written off. The A.O. held that since the assessee has not furnished any details or evidences in regard to accounting of income in past and therefore the claim of the assessee for bad debts was disallowed and added to the income.
76. Being aggrieved by the action of the A.O., assessee preferred an appeal before the CIT(A). CIT(A) upheld the order of AO by holding as under:-
" Since the appellant has not furnished any details and evidence in order to prove that the appellant had accounted any income from the transaction in past. I hold that the claim of the assessee has rightly been disallowed by the A.O. and as such the addition of Rs.39,50,6768/- is confirmed."
77. Before us, the Ld A.R. placed on page 71 to 76 of the paper book the details of amount written off. He submitted that since the amount has been written off, the assessee 26 ITA No.858, 927/AHD/2005 ITA No.1113 & 1198/A/2004 ITA No.1026/A/2007. A Years 2001-02, 00-01 & 2002-03 .
be allowed deduction and for which he relied on the decision of TRF (supra). On the other hand the Ld. D.R. submitted that the AO was right in disallowing the amounts because no details were submitted before the AO. He therefore requested that the matter may be remanded back to the AO for verification.
78. We have heard the rival contentions and perused the material on record. The AO and CIT(A) have given a finding that the assessee had not furnished any details and evidence in order to prove that the appellant had accounted any income from the transaction in past. On the other hand, the Assessee in the paper book has submitted the details of amounts written off. Since the details filed by the Assessee in the paper book were not before AO, we are of the view that in these circumstances, in the interest of justice and fair play the matter be remitted to the file of AO for verification. We accordingly remit the issue to the file of AO with the direction to verify the details and examine the issue as per the provisions of law and in light of the decision of H'ble Apex court in the case of TRF Ltd. Vs CIT (2010) 323 ITR 397 (SC) and thereafter decide the issue as per law. Needless to state, AO shall grant adequate opportunity of hearing to the Assessee. The Assessee will also cooperate with the AO and submit all the required details promptly as asked by the AO. Thus this ground of the assessee is allowed for statistical purposes.
The next ground of appeal relates to disallowance of Rs.6,00,000/-on account of legal and professional fees.
79. The A.O. observed that the assessee has debited expenses of Rs.20,34,115/- under legal and professional fees for Unit-1 and Unit-II. On verification of account, the AO observed that Rs.6,00,000/- has been debited on 8-10-2000 as paid by SIL to GE capital service for management fees. No further details or clarification was made available by the Assessee. The assessee had also advanced margin money of Rs.1,39,50,376/- to the above party. The AO was of the view that the expenditure being of enduring benefits and capital in nature and therefore not allowable and accordingly disallowed the same and added to the income. Aggrieved by the above action of the A.O. assessee carried the matter in appeal before the CIT(A).
27 ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004 ITA No.1026/A/2007. A Years 2001-02, 00-01 & 2002-03 .
80. Before CIT(A) the Ld. A.R. submitted that the legal and professional fee expenses paid to GE capital Services as management fees and are for the purpose of business and revenue in nature and further that the accounts are audited, the expenses should not have disallowed it by treating it in the nature of capital expenditure. CIT(A) observed that though nature of expenses was in the nature of management fee but in the absence of details proving the business expediency he upheld the action of A.O.
81. Aggrieved by the action of CIT(A), the assessee is in appeal before us. The Ld. A.R. submitted that the payment to GE capital was in the nature of management fees and therefore for the purpose of business. He further submitted that the Assessee is a company whose accounts are audited by Chartered Accountants, AO has not pointed out as to how the expenditure is of capital nature. He submitted that in the absence of any evidence, the expenses cannot be disallowed.
82. The Ld. D.R. on the other hand relied on the order of the A.O and CIT (A).
83. We have heard the rival contentions and perused the material on record. Before us, it has been submitted that the expenses were incurred for the business of the company and were revenue in nature. We also note that AO has noted that no details of the expenses were furnished before him. In these circumstances we feel that the matter be remitted to the AO to verify the contentions of the Assessee and thereafter decide the issue as per law. Needless to state that AO shall grant an adequate opportunity of hearing to the assessee. We also direct the Assessee to furnish all the details called for by the AO promptly so as to enable him to decide the issue. Thus this ground of the Assessee is allowed for statistical purposes.
84. The next ground of appeal relates to confirming the disallowance of Rs.5,24,421/- being hire charges paid to Blue Blends Finance Ltd.
85. Before us, both the parties submitted that the issue is the present ground is identical to the ground no. 2 in ITA No 1113 for AY 2000-01 and they have same submissions to make.
28 ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004 ITA No.1026/A/2007. A Years 2001-02, 00-01 & 2002-03 .
86. We have heard the rival submissions and perused the material on record. Before us, both the parties submitted that the facts in the present ground are identical to that ground no. 2 in AY 2000-01 which have been decided by us hereinabove. We for the same reasons given while deciding the ground for AY 2000-01 also remit the issue to the file of A.O with similar directions. Thus this ground is allowed for statistical purposes.
87. The next ground of appeal relates to the disallowance of Rs.3,20,160/- being 1/10th of travelling expenses.
88. The assessee company has debited travelling expenses Rs.32,01,507/- as against the expenses of Rs.24,61,450/- debited in immediately preceding. AO observed that the sales of the company stood decreased from Rs.105.27 crores to Rs.50.70 crores. He was of the view that prima facie, there appears no reason for increase in travelling expenses. Considering facts of the case and in absence of any detail of the expenses, the disallowance at 10% out of travelling expenses was made by AO and added to the income. Aggrieved by the above action of the A.O. the assessee carried the matter in appeal before the CIT(A).
89. CIT(A) upheld the order of the AO by holding as under:-
" After considering the submission of the Ld. A.R. and facts on record, I find that the appellant has no proper explanation for the increase in travelling expenses. In fact no precise details of the expenses incurred have been furnished by the appellant and the business expediency of such expenses also remains to be proved. The contention made by the Ld. A.R. is also general in nature. I therefore do not find any justification to interfere with the disallowance made by the A.O. which is confirmed."
90. Before us, the Ld. A.R. contended that the expenses on travelling has been made during the course of business and for the purpose of business. The AO has not pinpointed any defect in it. The disallowance has been made only on the basis of surmise and on adhoc basis. In such a situation the addition made be deleted. The Ld. D.R. on the other 29 ITA No.858, 927/AHD/2005 ITA No.1113 & 1198/A/2004 ITA No.1026/A/2007. A Years 2001-02, 00-01 & 2002-03 .
hand stated that the assessee had not furnished any details that were called for by the AO. In such a situation, the AO was right in estimating and making the disallowance.
91. We have heard the rival contentions and perused the material on record. It is a fact that the assessee has debited travelling expenses in its profit and loss account and has claimed it as deduction. The Assessee did not furnish the details before the AO or before CIT(A). The disallowance has been made on the basis of estimate. The fact of incurring of expenses of travelling is not disputed. The only dispute is with respect to the quantum of expenses. The A.O. had disallowed 1/10th of the travelling expenses on estimate basis. We are of the view that the disallowance made by AO on account of traveling expenses is on higher side. We are of the view that in such circumstances the adhoc disallowance of Rs. 2 lacs will meet the ends of justice. We accordingly direct the AO to restrict the disallowance to Rs. 2 lac. Thus this ground of appeal of the assessee is partly allowed.
92. In the result, the appeal of the assessee is partly allowed.
I.T.A. No.1026/AHD/2007. - A.Y. 2002-03
93. The only ground raised by the Revenue reads as under:-
" The CIT (A) erred in law and on facts in deleting the disallowance of Rs.7,50,420/- made on account of interest on loans given to staff."
94. Before us, both the parties submitted that the facts and circumstances of the present ground is identical to ground no 2 (ii) in ITA No 858/AHD/2005 for AY 2001-02 and the submissions made by them while arguing the matter for AY 01-02 would be equally applicable to the present ground.
95. We have heard the rival submissions and perused the material on record. Before us, both the parties submitted that the present ground of appeal, the issue, facts and submissions are identical to that of ground No 2 (ii) in ITA No 858/Ahd/2005 for AY 2001-
02. We therefore for the same reasons stated in hereinabove while deciding the ground in ITA No 858/AHD/2005 (supra) dismiss the ground of the Revenue.
30 ITA No.858, 927/AHD/2005ITA No.1113 & 1198/A/2004 ITA No.1026/A/2007. A Years 2001-02, 00-01 & 2002-03 .
96. Accordingly, the appeal of the Revenue is dismissed.
97. In the result appeals of Revenue are dismissed and of Assessee are partly allowed.
Order pronounced in Open Court on 01 - 08 - 2014.
Sd/- Sd/-
(G.C.GUPTA) (ANIL CHATURVEDI)
VICE PRESIDENT ACCOUNTANT MEMBER
Ahmedabad. TRUE COPY
Rajesh
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT (Appeals) Valsad.
4. The CIT concerned.
5. The DR., ITAT, Ahmedabad.
6. Guard File.
By ORDER
Deputy/Asstt.Registrar
ITAT,Ahmedabad.