Income Tax Appellate Tribunal - Jaipur
Lord Chloro Alkali Ltd., Jaipur vs Add.Cit, Jaipur on 17 November, 2016
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM
vk;dj vihy la-@ITA No. 813/JP/2014
fu/kZkj.k o"kZ@Assessment Years : 1998-99
M/s Lords Chloro Alkali Limited, cuke JCIT(A),
SPA-460, M.I.A, Vs. SPL Range,
Alwar. Alwar.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: M-1/JCIT/A/Spl.R.Alwar
vihykFkhZ@Appellant izR;FkhZ@Respondent
vk;dj vihy la-@ITA No. 812/JP/2014
fu/kZkj.k o"kZ@Assessment Years : 1998-99
ACIT, cuke M/s Modi Alkalies & Chemicals Ltd.
Circle-1, Vs. (Now known as Lords Chloro Alkali
Alwar. Ltd.), SP-460, Matsya Industrial Area,
Alwar (Raj)
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: M-1/JCIT/A/Spl.R.Alwar
vihykFkhZ@Appellant izR;FkhZ@Respondent
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s Assessee by : Shri P.C. Parwal (CA)
jktLo dh vksj ls@ Revenue by : Shri B.K. Gupta (CIT)
lquokbZ dh rkjh[k@ Date of Hearing : 21/09/2016
mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 17/11/2016
2 ITA 813 & 812/JP/2014_
M/s Lord Chloro Aklali Ltd. Vs JCIT (A)
vkns'k@ ORDER
PER: VIKRAM SINGH YADAV, A.M.:
Both the cross appeals, one by the assessee and another by the department arise against the order dated 30/09/2014 passed by the ld CIT(A), Alwar for the A.Y. 1998-99. The effective grounds of both the appeals are as under:-
Grounds of assessee's appeal:
"1. The Ld. CIT(A) has erred on facts and in law in confirming the ad hoc trading addition of Rs.20,00,000/- on account of decrease in the G.P. rate as compared to the last year. He has further erred in confirming the addition even when the AO in remand report has accepted the reasons for decline in g.p. rate.
2. The Ld. CIT(A) has erred on facts and in law in confirming the ad hoc disallowance of Rs.2,50,000/- out of foreign travelling expenses.
3. The Ld. CIT(A) has erred on facts and in law in confirming the disallowance of Rs.75,000/- out of motor car running expenses. He has further erred in confirming the disallowance even when the AO in the remand report has accepted that the expenses are supported by bills and vouchers including the hand- made vouchers.
4. The Ld. CIT(A) has erred on facts and in law in confirming the addition of Rs.78,00,000/- u/s 68 by treating the share application money pending allotment as unexplained.
5. The Ld. CIT(A) has erred on facts and in law in confirming the ad hoc disallowance of Rs.3,00,000/- out of repair and 3 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) maintenance expenses. He has further erred in confirming the addition even when the AO in remand proceedings has verified the bills/ vouchers and has not found any defect.
6. The Ld. CIT(A) has erred on facts and in law in confirming the disallowance of Rs.70,000/- out of advertisement and publicity expenses.
7. The Ld. CIT(A) has erredon facts and in law in confirming the addition of Rs.4,24,27,000/- on account of alleged receipt of own money as income of the assessee on the basis of Custom and Central Excise Order passed against the assessee in earlier years. He has further erred in confirming the addition even when the AO in remand report has accepted that during the year neither any sale out of books was found nor Excise Department has made out any case against the assessee.
8. The Ld. CIT(A) has erred on facts and in law in confirming the disallowance of Rs.2,71,000/- made by AO on account of difference in the rate of interest at which interest is received from bank on FDR and at which interest is paid on fixed deposits taken from public. He has further erred in confirming the addition even when the AO in remand report has accepted that interest paid on fixed deposit taken from public is for the purpose of business.
9. The Ld. CIT(A) has erredon facts and in law in confirming the ad hoc addition of Rs.2,00,000/- on account of perquisites to employees. He has further erred in confirming the addition even when the AO in remand report has accepted that the perquisite value has been considered in the hands of the employees.
10. The Ld. CIT(A) has erred on facts and in law in confirming the ad hoc disallowance of Rs.25,00,000/- made by AO out of interest payment.
4 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) Grounds in revenue's appeal:-
1. That the Commissioner of Income Tax (Appeals), Alwar has erred in law as well as on the facts and circumstances of the case in restricting the trading addition of Rs. 93,70,000/- to Rs. 20,00,000/- made by the AO on a/c low GP rate.
2. That the Commissioner of Income Tax (Appeals), Alwar has erred in law as well as on the facts and circumstances of the case in deleting the disallowance of Rs. 10,00,000/- made by the AO on a/c of travelling expenses.
3. That the Commissioner of Income Tax (Appeals), Alwar has erred in law as well as on the facts and circumstances of the case in restricting the disallowance of Rs. 5,00,000/- to Rs.
2,50,000/- made by the AO on a/c of foreign travelling expenses.
4. That the Commissioner of Income Tax (Appeals), Alwar has erred in law as well as on the facts and circumstances of the case in restricting the disallowance of Rs. 5,00,000/- to Rs. 75,000/- made by the AO on a/c of vehicle running expenses.
5. That the Commissioner of Income Tax (Appeals), Alwar has erred in law as well as on the facts and circumstances of the case in restricting the disallowance of Rs. 25,00,000/- to Rs. 3,00,000/- made by the AO on a/c of repair & maintenance expenses.
6. That the Commissioner of Income Tax (Appeals), Alwar has erred in law as well as on the facts and circumstances of the case in restricting the disallowance of Rs. 5,00,000/- to Rs. 70,000/- made by the AO on a/c of advertisement & publicity expenses.
5 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A)
7. That the Commissioner of Income Tax (Appeals), Alwar has erred in law as well as on the facts and circumstances of the case in restricting the disallowance of Rs. 20,00,000/- to Rs. 2,00,000/- made by the AO on a/c of perquisites to employees.
8. That the Commissioner of Income Tax (Appeals), Alwar has erred in law as well as on the facts and circumstances of the case in deleting the disallowance of Rs. 60,00,000/- made by the AO on a/c of interest on deposits with RSEB.
9. That the Commissioner of Income Tax (Appeals), Alwar has erred in law as well as on the facts and circumstances of the case in deleting the disallowance of Rs. 50,00,000/- made by the AO on a/c of valuation of Stores & Spares."
2. The brief facts of the case is that the assessee company is engaged in the manufacturing and sale of various chemicals like caustic soda lime, caustic soda flakes, CSS SBB etc. It filed the return declaring Nil taxable income on 27/11/1998 and the assessment proceedings were completed and order u/s 143(3) was thereafter passed on 31/01/2001.
3. Ground No. 1 of the assessee's appeal as well as the revenue's appeal is against the order of ld CIT(A) in confirming the ad hoc trading addition of Rs.20,00,000/- on account of decrease in the G.P. rate as compared to the last year and restricting the trading addition of Rs. 93,70,000/- to Rs. 20,00,000/- made by the AO on a/c of low GP rate. The assessee is engaged in the business of manufacturing and sale of the 6 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) various chemicals like Caustic Soda Lime, Caustic Soda Flake, Liquid Chlorine, Stable Bleaching Powder etc. The assessee has declared g.p. rate of 28.95% on sales of Rs. 13118.94 lacs as compared to g.p. rate of 41.52% on sales of Rs. 14574.40 lacs in the previous year. In assessment proceedings, the A.O. found that the assessee has not produced any voucher in support of his claim that sale price has decrease in comparison to last year and has also not filed details of consumption of power, raw material & finished goods. Accordingly, he made the trading addition of Rs. 93,70,000/- by applying g.p. rate of 35%. During the course of appellate proceedings before the ld CIT(A), the matter was remanded to AO for giving fresh opportunity to the appellant to produce the books of account and to furnish remand report after examining the same. During the course of remand proceedings, during the course of hearing on 17.06.2014, the A.R. has produced cash-book, ledger, purchase bills, stock register, consumption of power bill, raw material and finished goods details and submitted its reply which is as under:-
a) The assessee is maintaining day to day books of accounts along with the stock register. The complete quantitative details are given at annexure 13 & 14 of the Tax audit report. (P.B.44-45). All the 7 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) purchase and sales are fully vouched and verifiable and submitted the main reasons for decline in the g.p. rate which are as under:-
i) Decrease in the average sale rate of Caustic Soda:-
The major sale of the assessee is of Caustic Soda. During the year average sale price of the Caustic soda has decreased to Rs.12076/- per MT as against average sale rate of last year at Rs. 15085/- per MT. The sale of caustic soda comprises approximately 64% of the total sale. Statement indicating working of the average sale rate of current year as well as last year is at P.B.59. In assessment proceeding, the AO never required the assessee to produce any detail in support of the decline in the sale rate as compared to the last year but summarily observed that in the assessment order that vouchers were not produced for verification. The sample bills for both the years in support of the decline in sale price as compared to the last years are produced. Therefore the decline in the sale rate is fully verifiable.
ii. Increase in the cost of raw material used in production:-
The main raw material used in the production is Salt. The average purchase price of the salt has increased to Rs.872/-per MT as against last year average purchase price of Rs.792/- per MT. Statement 8 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) indicating working of the average purchase rate of current year as well as last year is at P.B.60-61.
iii. Increase in the cost of power:-
During the year the cost of the power has been increased in terms of unit rate. The cost of the power has increased from average rate of power of Rs.2.87 per KWH in last year to Rs.3.22 per KWH this year.
This fact is also evident from the Form A of the balance sheet. (P.B.62-
63) The AO finally stated in his remand report that "the decrease in sale rate of caustic soda and increase in the power cost and raw material cost is verified as submitted by the assessee."
4. The ld CIT(A) after taking into consideration the appellant's submission and the remand report of the AO, restricted the trading addition by giving the following findings:-
"I have carefully examined the material placed on record and find that the reasons stated by the appellant for decline in the gross profit rate have been broadly accepted by the A.O. in the course of remand proceedings. Therefore, I hold that it would just and fair to restrict the trading addition to Rs. 20,00,000/-
9 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) out of the total trading addition of Rs. 93.70 lacs made by the A.O."
5. Now the assessee as well as the revenue are in appeal before us. The ld. AR of the assessee has submitted that the AO in the remand report has accepted the explanation of the assessee regarding decline in g.p. rate. Still the CIT(A) held that though the reasons stated by the appellant for decline in g.p. rate have been broadly accepted by the AO, it would be just and fair to restrict the tradition addition to Rs.20 lacs. Thus, CIT(A) without giving any specific finding/basis confirmed the part addition which is unjustified. Per contra, the ld CIT DR has vehemently supported the order of the Assessing Officer.
6. We have heard the rival contentions of both the parties and perused the material available on the record. Where the reasons for the decline in the G.P rate has been accepted by the AO as well as by the ld CIT(A), we do not see any justifiable reason to upheld the trading additions made by the AO on account of low G.P rate. The basis of adopting 35% G.P rate by the AO and how the same has been derived at
- whether based on assessee's past history or similar line of business is not clear. Similarly, the basis of upholding the ad-hoc addition of Rs 20,00,000 by the ld CIT(A) is equally not clear especially when the ld 10 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) CIT(A) was satisfied with the explanation of the assessee regarding the fall in G.P rate. Given that the assessee has given a justifiable explanation with supporting numbers to corroborate its explanation for the fall in G. P rate, we delete the trading addition of Rs 93.70 lacs as made by the AO. Hence, ground no. 1 of assessee is allowed and ground no. 1 of revenue is dismissed.
7. The 2nd ground of the revenue's appeal is against deleting the disallowance of Rs. 10,00,000/- made by the Assessing Officer on account of travelling expenses. The assessee debited a sum of Rs. 1,10,88,388/- under the head travelling expenses. In assessment proceeding, the assessee filed the details of the travelling expenses. The AO observed that the expenses under this head includes sum of Rs. 33,55,590/- under the head conveyance expenses and Rs. 33,39,722/- under the head travelling expenses. The assessee has failed to produce vouchers exceeding Rs. 10,000/- for verification. Accordingly, A.O. made disallowance of Rs. 10,00,000/- on estimation basis for want of adequate evidences. During the course of remand proceedings, the A.R. has produced Travelling expenses bills, and vouchers towards the claim made for deletion of travelling expenses and submitted its reply to the AO. The AO in his remand report stated that "Travelling expenses and conveyance 11 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) expenses as claimed by the assessee has been checked on test basis with the supporting vouchers, bills as submitted/produced by the assessee."
8. The ld CIT(A) after taking into consideration the remand report deleted the disallowance by holding that the Assessing Officer has examined the vouchers for travelling expenses on test-check basis in the course of remand proceedings and has not pointed out any defects in the same.
9. Now the revenue is in appeal before us. The ld CIT DR has vehemently supported the order of the Assessing Officer.
10. At the outset, the ld AR of the assessee has submitted that the AO in the remand proceedings has examined the vouchers/bills of travelling expenses submitted by the assessee on test check basis. Accordingly, the ld CIT(A) by holding that AO has not found any defects in the vouchers, rightly deleted the addition made by the AO.
11. We have heard the rival contentions of both the parties and perused the material available on the record. The bills/vouchers for travelling expenses have been examined by the AO and in absence of any specific defect pointed out by the AO, the ad hoc addition of Rs 10 lacs 12 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) cannot be sustained in eye of law. The revenue's ground no. 2 is thus dismissed.
12. The ground No. 2 of the assessee's appeal and ground No. 3 of the revenue's appeal is against confirming the ad hoc disallowance of Rs. 2,50,000/- out of foreign travelling expenses and restricting the disallowance of Rs. 5,00,000/- to Rs. 2,50,000/- made by the Assessing Officer on foreign travelling expenses. In its remand report, the AO stated that "the assessee has submitted details of foreign travel expenses with vouchers of tour reports. It is found that visit by C.E.O. for other projects and some cases business purpose of visit are not justified."
13. The ld CIT(A), thereafter restricted the addition from Rs. 5,00,000/- to Rs. 2,50,000/- by holding that the appellant has stated that AO has not pointed out any specific visit which is-for personal purpose and therefore the disallowance of Rs. 5 lacs under this head on account of foreign travelling is unjustified. Considering the material available on record, the ld. CIT(A) found that there are certain deficiencies which were noticed by the AO in the course of examination of bills and vouchers, reports etc. at the stage of remand proceedings. Accordingly, it 13 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) would be fair to restrict the disallowance to Rs. 2,50,000 out of the total disallowance of Rs. 5,00,000 under this head.
14. Now the assessee as well as the revenue are in appeal before us. The ld AR of the assessee has submitted that the AO in the remand report after going through the details of foreign travel expenses and vouchers of tour reports submitted by assessee held that the visit by CEO is for other projects and in some case visit for business purpose are not justified. The Ld. CIT(A) by holding that there are certain deficiencies which were noticed by the AO in the course of examination of bills and vouchers, reports, etc. at the stage of remand proceedings, confirmed the disallowance to Rs.2.5 lacs. It is submitted that both the lower authorities has not specified any visit/expenses which is not for business purpose and thus the disallowance so confirmed is unjustified and be deleted.
15. At the outset, the ld CIT DR has vehemently supported the order of the Assessing Officer.
16. We have heard the rival contentions of both the parties and perused the material available on the record. The assessee has submitted details of foreign travel and tour reports to the AO in the 14 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) original proceedings as well as during the course of remand proceedings. Once the adequate material evidence is on record, the observation of the AO doesn't inspire confidence at all where he says that "visits of the CEO for some other projects and business purposes of some visits are not justified". Where the assessee has given adequate supportive documentation in support of the foreign travel in terms of bills and tour report containing travel dates, purpose etc, we don't see any justifiable reason to sustain the ad hoc addition on account of foreign travel expenses. It is not the case of the Revenue that some non-employees or relatives of the directors, etc visited overseas. Further, the necessity of foreign travel is a business decision which should be best left to the assessee company unless there are some substantial corroborative evidence to prove otherwise. The ground no. 2 of the assessee is thus allowed and ground no. 3 of revenue is dismissed.
17. The 3rd ground of the assessee and 4th ground of the revenue are against confirming the disallowance of Rs. 75,000/- out of motor car running expenses and restricting the disallowance of Rs. 5,00,000/- to Rs. 75,000/- made by the Assessing Officer on account of vehicle running expenses. The AO in its remand report stated that "Motor car expenses 15 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) verified with the bills & vouchers submitted/ produced by the assessee. We found handmade vouchers also as out Rs. 1.00 Lacs."
18. The ld CIT(A), after considering the assessee's submission and remand report, restricted the addition from Rs. 5,00,000/- to Rs. 75,000/- by holding that the AO has in the course of remand proceedings, verified the claim of these expenses on test-check basis and has stated that self made vouchers for expenses of about Rs. 1 lac have been debited under this head. Considering the material available on record, he found that it would be fair and just to restrict the disallowance to Rs. 75,000 on this account out of the total disallowance of Rs. 5 lacs.
19. Now the assessee as well as the revenue are in appeals before us. The ld AR of the assessee has submitted that the AO in the course of remand proceedings verified the claim of these expenses on test check basis and found that expenses to extent of Rs.1 lacs are supported by handmade vouchers. Accordingly, CIT(A) confirmed the disallowance to Rs.75,000/-. It is submitted that even handmade vouchers is a supporting evidence for incurring the expenditure. The AO has not pointed out any discrepancy in these vouchers and thus, the disallowance so confirmed be deleted.
16 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A)
20. At the outset, the ld CIT DR has vehemently supported the order of the Assessing Officer.
21. We have heard the rival contentions of both the parties and perused the material available on the record. No specific discrepancy has been pointed by the AO in the bills/vouchers submitted by the assessee. It is not the position of the Revenue that the expenses claimed are bogus in nature or not incurred for the purposes of the business. The adhoc disallowance cannot therefore be sustained in eye of law. Ground no. 3 of the assessee's appeal is allowed and ground no. 4 of revenue's appeal is dismissed.
22. The 4th ground of the assessee's appeal is against confirming the addition of Rs. 78,00,000/- under section 68 of the Act by treating the share application money pending allotment as unexplained. The AO observed that the assessee has received share application money of Rs.78,00,000/- during the year and the assessee was asked to file the confirmation of share application money but no such confirmation was filed. Accordingly he treated it as unexplained income of the assessee and made addition of Rs.78,00,000/- by applying the provisions of section
68. During the course of appellate proceedings, the matter was 17 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) remanded to the AO and the AO in his remand report stated that "The assessee had produced details of parties from whom share application money was received. However, the confirmation from parties are not submitted."
23. During the course of hearing, the ld AR of the assessee has submitted that the share application money was received from the Modi Group of Companies who were existing promoters of the company. In subsequent years, shares have been allotted to them. The payment was received by account payee cheque. The assessee has filed the complete details of the share applicant like name address and PAN number. This fact has been accepted by the AO in the remand report. The AO has confirmed the addition only because confirmation was not filed. Even after submitting the details, the lower authorities have not made any enquiry from these parties by issuing notice u/s 131/133(6). Thus, the assessee has discharged its onus and no disallowance is called for. Further, regarding ld CIT(A)'s observation that no share applicants could be produced before the AO and no evidence in the form of copy of their bank accounts could be filed by the appellant even in the course of remand proceedings, the ld AR has submitted that the matter relates to AY 1998-99 and the ownership/management of the assessee company 18 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) has since changed hands long back and it is practically difficult to expect the assessee company to produce the original promoters or ask for their bank statements who have sold their shares long back.
At the outset, the ld. CIT DR has vehemently supported the orders of the lower authorities.
24. We have heard the rival contentions of both the parties and perused the material available on the record. In order to appreciate the rival contentions, we refer to the provisions of section 68 which reads as under:
"Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year."
25. Section 68 of the Act has received the attention of the Hon'ble Supreme Court and almost all the High Courts in numerous cases. It has been almost unanimously held that the initial burden under this section is on the assessee and the said burden is discharged by the assessee only when the assessee proves three things to the satisfaction of the AO, viz., 19 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) identity of the creditor, capacity of the creditor and genuineness of the transaction.
26. We know refer to the judgment of Hon'ble Delhi High Court relied upon by the ld AR in the case of CIT vs. Lovely Exports Pvt. Ltd. 299 ITR 268 (Delhi) and SLP against the said decision which was subsequently dismissed by the Hon'ble Supreme Court. The Hon'ble Delhi High Court held that the Tribunal had categorically held that the assessee "has discharged its onus of proving the identity of the share subscribers". Had any suspicion still remained in the mind of AO, he could have initiated "coercive process" but this course of action had not been adopted. The deletion of the additions was justified. Further, relevant observations of the Hon'ble High Court are as under:
"18: In this analysis, a distillation of the precedents yields the following propositions of law in the context of section 68 of the Income-tax Act. The assessee has to prima facie prove (1) the identity of the creditor/ subscriber; (2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor/subscriber; (4) if relevant details of the address or PAN identity of the creditor/subscriber are furnished to the Department along with copies of the shareholders register, 20 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) share application forms, share transfer register, etc., it would constitute acceptable proof or acceptable explanation by the assessee. (5) The Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices;
(6) the onus would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the assessee nor should the Assessing Officer take such repudiation at face value and construe it, without more, against the assessee; and (7) the Assessing Officer is duty-
bound to investigate the creditworthiness of the creditor/subscriber the genuineness of the transaction and the veracity of the repudiation."
27. A special leave petition filed by the revenue challenging the order of the Delhi High Court in the case of Lovely Exports Pvt. Ltd. was subsequently dismissed by the Hon'ble Supreme Court in limine reported in CIT Vs Lovely Exports Pvt. Ltd. (2009) 319 ITR (St.) 5 (SC) which reads as follows:-
"We find no merit in this special leave petition for the simple reason that if the share application money is received by the assessee-company from alleged bogus shareholders, whose names are given to the Assessing Officer, then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment."
21 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A)
28. The Hon'ble Jurisdictional High Court in case of CIT vs. Shree Barkha Synthetics Ltd 270 ITR 477 (Raj) has held that the Tribunal had reached its conclusion about the non-inclusion of the share application money in respect of six companies and nine individual investors, in the assessee's income, based on evidence. The assessee had discharged its initial burden and further enquiry had not been pursued by the Revenue. The findings of the Tribunal could not be said to be perverse. Thus, it could not be said that any substantial question of law arose from the order of the Tribunal.
29. The Hon'ble Jurisdictional High Court in case of in case of First Point Finance Ltd 286 ITR 477 (Raj) following the earlier decision in case of Shree Barkha Synthetics Ltd (supra) held that "it was not denied that all the shareholder/ share applicants were genuinely existing persons. It was also not denied that each of them was an income tax assessee and copies of the return of their income were also placed before the A.O. There was no presumption that the assessee was the benami owner of the investment made by the existing persons. The Tribunal was justified in deleting the addition.
30. On going through the above referred judgments of Hon'ble Supreme Court and the Hon'ble High Courts, it is explicit that the initial 22 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) onus under section 68 of the Act can be said to have been discharged only when the assessee proves existence/identity of the subscriber, capacity/creditworthiness of the subscriber and the genuineness of transaction to the satisfaction of the AO. All the three constituents are required to be cumulatively satisfied. If one or more of them is absent, then the AO can lawfully make addition. Once the initial onus is satisfied by the assessee, the onus shifts on the Revenue and where it is not satisfied with the assessee's explanation, it can then carry out further enquiry in the matter.
31. Now let's examine the above legal proposition in the context of facts before us. In the instant case, the AO observed that in the printed balance sheet of the assessee company, share application money pending allotment is shown at Rs.78,00,000/-. The assessee was asked to file the confirmation of share application money but no such confirmation was filed as required under section 68 of the Act. Hence, the share application money of Rs 78,00,000 was treated as unexplained u/s 68 and the same was added to the income of the assessee. During the course of appellate proceedings, the matter was remanded to the AO and the AO in his remand report stated that "The assessee had produced details of parties from whom share application money was received.
23 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) However, the confirmation from parties are not submitted." The ld CIT(A) had confirmed the addition by holding that no share applicants could be produced before the AO even in the course of remand proceedings to prove the identity of the share applicant. Further, no evidence in the form of copy of their bank account could be filed by the appellant to substantiate the creditworthiness of the applicants. Also no other evidence has been filed by the appellant in support of the sources of their incomes. Accordingly, the ld CIT(A) held that appellant has not been able to discharge the onus which lay upon him under the provisions of section 68 of the IT Act. The ld AR of the assessee has submitted that the share application money was received from the Modi Group of Companies who were existing promoters of the company. In subsequent years, shares have been allotted to them. The payment was received by account payee cheque. The assessee has filed the complete details of the share applicant like name address and PAN number and this fact has been accepted by the AO in the remand report. Further, regarding ld CIT(A)'s observation that no share applicants could be produced before the AO and no evidence in the form of copy of their bank account could be filed by the appellant even in the course of remand proceedings, the ld AR has submitted that the matter relates to AY 1998-99 and the 24 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) ownership/management of the assessee company has since changed hands long back and it is practically difficult to expect the assessee company to produce the original promoters or ask for their bank statements who have sold their shares long back.
32. We have given a careful consideration to the matter. It is noted that the assessee was carrying on business for past many years and during the year under consideration, share application money has been received towards subscription of the share capital of the assessee company. The share application money has been received from the existing promoter group of companies and not from any third person/entity. The promoter group of companies had invested in the share capital of the assessee company in the past and their credit worthiness is well established and accepted by the Revenue in the past. It is not the case of the Revenue that the shareholders were benamidars or fictitious persons or that any part of the share capital represented the company's own income from undisclosed sources. Further, the share application money has been received through normal banking channels and subsequently shares have been allotted. Once the identity and credit worthiness of the subscribers is established and genuineness of transaction is not doubted, mere non-filing of the confirmation cannot be 25 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) held sufficient enough to attract the provisions of section 68 of the Act. In the peculiar facts of the present case, where the share application money has been received from the existing shareholders and the necessary particulars in terms of name, address and PAN number have been furnished to the AO, the AO could have carried out further verification/enquiry where he is not satisfied with the assessee's explanation. There is nothing on record to suggest that the AO has carried out any further enquiry after receiving the necessary details. Therefore, in the entirety of facts and circumstances of the case and in light of judicial authorities quoted supra, we delete the addition made under section 68 of the Act. Ground no. 4 of assessee's appeal is thus, allowed.
33. The 5th ground of the assessee's appeal as well as ground no. 5 of the revenue's appeal is against confirming the adhoc disallowance of Rs. 3,00,000/- out of repair and maintenance expenses and restricting the disallowance of Rs. 25,00,000/- to Rs. 3,00,000/- made by the Assessing Officer on account of repair and maintenance expenses. During the course of remand proceedings, the A.R. has produced repair and maintenance bills and supporting vouchers and the AO in his remand report stated that "we have verified bills / vouchers on test basis related 26 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) to repair & maintenance expenses. The assessee has submitted the vouchers & supporting documents which were indicated as not produced in the assessment order."
The Ld. CIT(A) thereafter restricted the disallowance from Rs. 25,00,000/- to Rs. 3,00,000/- by holding that the appellant has stated that AO has verified the supporting vouchers for the expenses claimed and has not made any adverse comments. Considering the evidence placed on record and the fact that AO has verified these expenses on test-check basis, he held that it would be just and fair to restrict the disallowance under this head to Rs. 3 lacs out of the total disallowance of Rs. 25 lacs.
The ld AR of the assessee has submitted that the AO in the remand proceedings has verified the vouchers/bills submitted by the assessee on test check basis and has not found any defect therein. However, the CIT(A) without giving any specific finding/ basis confirmed the disallowance to Rs.3 lacs which is unjustified.
At the outset, the ld CIT DR has relied on the order of the Assessing Officer.
27 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A)
34. We have heard the rival contentions of both the parties and perused the material available on the record. Where the AO has verified the vouchers/bills submitted by the assessee on test check basis and has not found any defect therein, we see no justifiable reason to sustain the disallowance. The ground no. 5 of assessee's appeal is allowed and ground no. 5 of revenue's appeal is dismissed.
35. The 6th ground of the assessee's appeal and 6th ground of the revenue's appeal are against restricting the advertisement and publicity expenses to Rs.70,000/- out of total disallowance of Rs.5,00,000/- and confirming disallowance of Rs.70,000/- out of the advertisement and publicity expenses. The assessee has debited a sum of Rs. 45,93,941/- under the head rent, rates, taxes and advertisement and publicity. The AO observed that the vouchers produced by the assessee in assessment proceeding were not found fully verifiable. Accordingly, A.O. made lump sum disallowance of Rs. 5 lacs.
During the course of remand proceedings, the A.R. has produced advertising and publicity expenses bills and vouchers and submitted before the AO that the expenditure on advertisement and publicity is mainly in respect of publication in the news paper duly supported by the 28 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) news paper cutting. Thus the expenses under this head are fully verifiable. AO has not pointed out any specific defect in the vouchers and therefore the lump sum disallowance made by him is unjustified. In its remand report, the AO stated that "the assessee has submitted ledger account of advertisement, rent, and rates & taxes expense account. We have checked the vouchers on test basis but found expenses of advertisement & publicity unsupported with mode of advertisement."
The Ld. CIT(A) thereafter restricted the disallowance from Rs. 5.00 lacs to Rs. 70,000/- by holding that after considering the material available on record, the AO has test check the vouchers for claim of expenses on this account and pointed out certain defects as regards the claim of expenses of Rs. 6,89,655 under the head Advertisement and publicity are concerned. Therefore, the ld. CIT(A) held that it would be fair to restrict the disallowance to Rs. 70,000 on this account as against the total disallowance of Rs. 5 lacs under this head.
The ld AR of the assessee submitted that the AO in the remand report held that the expenses on advertisement & publicity are unsupported as to the mode of advertisement. The Ld. CIT(A) confirmed the disallowance to Rs.70,000/- by holding that the AO has test check the expenses and has pointed out certain defects. It is submitted that 29 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) expenditure were incurred in respect of publication in the newspapers which is duly supported by news paper cutting. Both the lower authorities has not pointed out any specific defect in the vouchers/bills and thus, the disallowance so confirmed be deleted.
At the outset, the ld CIT DR has vehemently supported the order of the Assessing Officer.
36. We have heard the rival contentions of both the parties and perused the material available on the record. It is the contention of the ld AR that expenditure was incurred in respect of publication in the newspapers which is duly supported by news paper cutting. However, there is no such finding by the lower authorities. The matter is accordingly set-aside to the file of the AO to examine the same a fresh. Ground no. of 6 of assessee's appeal as well as ground no. 6 of revenue's appeal is thus allowed for statistical purposes.
37. The 7th ground of the assessee's appeal is against confirming the addition of Rs. 4,24,27,000/- on account of alleged receipt of on- money as income of the assessee on the basis of custom and Central Excise Order passed against the assessee in earlier years. The A.O. observed that in the search conducted by Central Excise Department on 27-08- 30 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) 1996 and the consequent order passed by Commissioner of Central Excise dated 8-12-1998 it was found that assessee was collecting amount in cash from Customers of liquid chloride over and above the invoice value. This matter has been discussed in A.Y. 1996-97 & 1997-98 and an addition of Rs.533.24 lacs and Rs.180.95 lacs was made respectively. During the course of remand proceedings, the A.R. has submitted its reply which is as under: -
1. A.O. has failed to appreciate that the order of the custom and central excise was not final order and no addition could be made on the basis of such an order in the hands of the assessee.
2. A.O. has failed to appreciate that the statement of Shri. Ashok Kumar, an employee of the assessee company, was extracted under duress and the same could not be made the basis of addition of such a huge amount of Rs. 4,24,27,000/-.
3. Addition of Rs. 4,24,27,000/- is not legally sustainable and the same may be deleted. The A.O. observed that in the search conducted by Central Excise Department on 27-08-1996 and the consequent order passed by Commissioner of Central Excise dated 08.12.1998 it was found that assessee was collecting amount in cash
31 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) from Customers of liquid chloride over and above the invoice value. This matter has been discussed in A.Y. 1996-97 & 1997-98 and an addition of Rs. 533.24 lacs and Rs. 180.95 lacs was made. He presumed that this practice must by existing in the year under consideration also and therefore he made addition of Rs. 424.27 lacs on proportionate basis with reference to the turnover and the addition made in A.Y. 1996-97.
It may be noted that the entire addition is made on assumptions and presumptions. There is no evidence that assessee has charged any cash amount over and above the invoice value during the year under consideration nor the AO has brought any evidence in this regard. Only because addition on this account was made in earlier years, it can't be presumed that in all the subsequent years such practice would have continued. Even the excise department has not made any such charge for the year under consideration.
In view of the above the addition made by the AO is baseless and be deleted.
The AO in his remand report has stated as follows: "The addition of Rs. 424.27 Lac was based on the information received from Central Excise Department as per search conducted by them in the F.Y. 1996-97.
32 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) No such information for the A.Y. 1998-99 is available on record. Therefore a letter was written to the Central Excise Department in this matter by this office letter No. 377 dated 24.06.2014. In this regard the Central Excise Department submitted on 15.07.2014 by letter No. 447, the information is as under "there was no such case of under valuation booked against M/s Modi Alkalies and Chemicals Limited, SP-460, M.I.A., Alwar regarding financial year 1997-98 and thereafter, so far."
38. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld. CIT(A), who had confirmed the addition of Rs. 4,24,27,000/- made by the Assessing Officer by observing as under:-
"12.7 During the course of appellate proceedings, the AO has made enquiries with the Central Excise and Customs Department and a reply has been obtained, as stated in the remand report that "there was no such case of under valuation booked against M/s Modi Alkalies and Chemicals Limited, SP-460, M.I.A., Alwar regarding financial year 1997-98 and thereafter, so far". However, it is found that addition has been made in the case of the appellant on the basis of statement of an employee recorded by the Customs and Central Excise Department wherein it was stated that the company is receiving sale consideration from the customers over and above the invoice value in 33 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) cash. This addition has been made in the hands of the appellant in earlier years as well. Therefore, I hold that the reply received by the AO in the course of remand proceedings does not cover this issue. Further, the appellant has also failed to furnish any material on this issue which could controvert the evidence available on record. Accordingly, I confirm the addition of Rs. 4,24,27,000/- made by the AO under this head."
39. Now the assessee is in appeal before us. The ld. AR of the assessee has submitted that the AO in the remand report has accepted that during the year neither any sale out of books was found nor excise department has made out any case against the assessee. The letter of the Central Excise Department wherein it was stated that there was no such case of under valuation booked against the assessee during the year under consideration was also filed. Still CIT(A) confirmed the disallowance on the basis of statement of an employee recorded by the CEC Department wherein it was stated that the company is receiving sale consideration from the customer over and above the invoice value in cash ignoring that such statement is not related to the year under consideration and on the ground that addition has been made in the earlier years as well. Hence, addition confirmed by CIT(A) is unjustified and be deleted.
34 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A)
40. At the outset, the ld CIT DR has vehemently supported the orders of the lower authorities.
41. We have heard the rival contentions of both the parties and perused the material available on the record. For AY 1996-97, similar issue has been dealt by the Coordinate Bench in ITA 382 & 420/JP/2011 dated 19.08.2016 wherein it was held as under:
"We have heard the rival contentions of both the parties and perused the material available on the record. The ld. AR has confirmed that the matter before CESTAT is still pending for adjudication and he has given an assurance that as soon as the order is pronounced by CESTAT and a copy is made available to the assessee, the assessee shall forthwith share a copy of the CESTAT order with the AO without any undue delay. In light of that, we confirm the order of the ld. CIT(A) and set- aside the matter to the file of the AO to decide the same afresh as per law after taking into consideration the decision of CESTAT. Further we do not see any infirmity in the order of the ld. CIT(A) to allow the claim of the assessee towards payments of excise duty of Rs. 60 lacs, claimed to be paid before the due date of filing of return of income, subject to due verification by the AO."
42. In the instant case, the AO has placed his reliance on the findings in the assessment order for AY 1996-97 and given that the Coordinate 35 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) Bench has already taken a view in the matter referred supra, we do not see any reason for us to deviate from the said view taken by the Coordinate Bench. Nothing has been brought to the notice of the Bench in respect of whether CESTAT order has been pronounced or not since the date of passing of order by the Coordinate Bench in August 2016. Once the CESAT order is pronounced, the nature of implications as well as the years involved would be clear and the Revenue as well as the assessee would be in a better position to put foreword their respective contentions. Hence, the findings and directions contained in Coordinate Bench decision for AY 1996-97 shall apply mutatis mutandis to the impunged assessment year as well. Hence, ground no. 7 of assessee is allowed for statistical purposes.
43. The 8th ground of the assessee's appeal is against confirming the disallowance of Rs. 2,71,000/- made by the Assessing Officer on account of difference in the rate of interest. The assessee has deposited a sum of Rs. 98.36 lacs with the bank in FDR against the margin money. On these FDR it is receiving interest @9.30%. As against this, the assessee has paid interest @ 14% to 15% on the fixed deposit obtained from public. The AO therefore, observed that the rate of interest payment is higher as compared to the interest received on margin money and therefore he 36 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) worked out the excess interest paid at Rs. 2,71,000/- and made disallowance of the same. During the course of remand proceedings, the A.R. has submitted its reply as under: -
"1. At the outset we may point out that the AO has compared the rate of interest on FDR kept as margin money with the rate of interest paid on the fixed deposit taken from public which is incorrect. This is not the case of the AO that assessee raised the fixed deposit from public for earning interest income by depositing it in the bank. The deposit raised from the public was for business expediency and therefore no part of the interest paid can be disallowed in view of the decision of Supreme Court in case of S.A. Builders 288 1TR 1.
2. We may further point out that the FDR were kept in the bank as margin money to give the bank guarantee to RSEB on which interest was paid by bank to the assessee @9.60% p.a.. As against this, the Fixed deposit taken from the public is at the interest rate of 14% to 15% (wrongly mentioned by the AO at 21.62%) as is evident from copy of few fixed deposit receipt placed at P.B.245-249. These two interest rate, therefore can't be compared for making the disallowance."
37 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) The AO in his remand report stated that "The assessee has given margin money deposit to banks (PNB and SBI) for getting bank guarantee and letter of credit as it appears from the account copy submitted by the assessee. The bank guarantee and letter of credit are for the purpose of the business and has been test checked."
The ld. CIT(A) however confirmed the addition made by the Assessing Officer by holding that the AO has stated in the remand report that the fact of deposits having been made by the appellant with the banks are for the purposes of business. However, he found that an inspection by the department of company affairs had also revealed certain irregularities on the issue of interest payments. Based on this findings addition have been made by the AO in the earlier years as well. Therefore, he upheld the action of the AO for making disallowance of Rs. 2,71,000 on account of interest rate differential and confirm the same.
The ld AR of the assessee has submitted that the AO in the remand report has accepted that assessee has given margin money deposit to banks for getting bank guarantee and letter of credit which is for the purpose of business. Still the CIT(A) confirmed the disallowance on the ground that inspection by the department of company affairs had 38 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) revealed certain irregularities on the issue of interest payment without specifying the same. Hence, disallowance confirmed by CIT(A) is unjustified and be deleted.
At the outset, the ld CIT DR has vehemently supported the orders of the lower authorities.
44. We have heard the rival contentions of both the parties and perused the material available on the record. It is not in dispute that the fixed deposits were placed with banks as margin money to avail the facility of bank guarantee which the appellant requires for the purposes of its business. The purpose of fixed deposit was thus not for the purposes of earning interest income but to secure bank guarantee for the purposes of business. At the same time, nothing has been brought on record to the attention of the Bench by either of the parties to determine what kind of irregularities had been revealed by the department of company affairs in matter of interest payment - the basis for sustaining the disallowance by the ld CIT(A). In the interest of justice and fair play, we therefore remand the matter back to the file of the AO to examine the details of enquiry conducted by department of company affairs and how 39 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) the same is relevant for the transaction under consideration. Ground no. 8 of assessee's appeal is allowed for statistical purposes.
45. Ground No. 9 of the assessee's appeal and ground No. 7 of the revenue's appeal are against restricting the expenses made on account of perquisites to employees to Rs.2,00,000/- out of total disallowance of Rs.20,00,000/- and confirming disallowance of Rs.2,00,000/- out of perquisites to employees. The AO observed that perusal of the Form No. 16 filed in respect of Shri K.N. Modi, Chairman and M.D. reveals that perquisite amounting to Rs.83,280/- has been shown paid and the same has been recovered by the company. The assessee was asked to explain the accountability of the perquisite recovered and produce the proof of the same but the same was not produced in respect of all the employees except one. Accordingly, the AO made addition of Rs. 20 Lacs. During the course of remand proceedings, during the course of hearing on 17.06.2014, the A.R. has produced T.D.S. return , detail of Form No 16 and submitted its reply which is as under: -
1. The AO observed that perusal of the Form No. 16 filed in respect of Shri K. N. Modi, Chairman and M.D. reveals that perquisite amounting to Rs.83,280/- has been shown paid and the same has been 40 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) recovered by the company. The assessee was asked to explain the accountability of the perquisite recovered and produce the proof of the same but the same was not produced. Accordingly, the AO estimated the perquisite of all the employees at Rs.20 lacs and made addition for the same.
2. We may point out that Shri K.N.Modi was Chairman and Managing Director of the company. The company has recovered certain amount against the perquisite provided to him for use of house, car, water and electricity and furniture. This recovery is made directly from the salary of each month and the amount deducted from salary is credited to the respective expenditure account. Hence the recovery made is duly accounted for in the books of accounts.
3. So far as facilities provided to other employees are concerned, the company is providing various facilities to the employees as per the rules of the company. These facilities provided are part and parcel of the salary package of the employee and the same is expenditure of the company. If any recovery is made the same is credited to the respective expenditure. The AO has also not brought any evidence to establish that correct value of the perquisite provided to the 41 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) employees and recovered from same has not been considered in Form no. 16 issued to them. In view of the above facts, the addition of Rs.20 lacs made by the AO is uncalled for and be deleted.
The AO in his remand report stated that "the assessee has filed TDS return and Form 16 of their employees at Alwar. On our test checks, we have noted perquisite value of car, house accommodation, LTA etc. has been taken into account while calculating the tax of the employees."
The Ld. CIT(A) had restricted the disallowance from Rs. 20,00,000/- to Rs. 2,00,000/- by holding that the appellant has filed details in respect of the employees in the course of appellate proceedings and explain that value of these perquisites is duly accounted for in the hands of employees. These details alongwith Form no. 16 of employees was test checked by the AO in the course of remand proceedings. The AO has not given any adverse comments on this issue. At the same time, as the AO has failed to give a finding with regard to the details of perquisites and salary payments to Sh. K. N. Modi, therefore, the ld. CIT(A) held that it would be fair to restrict the disallowance under this head to Rs. 2 lacs.
42 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) The ld AR of the assessee has submitted that the AO in the remand report has verified the TDS return and Form 16 of all the employees and submitted that the perquisite value has been considered in the hands of the employees. However, CIT(A) without giving any specific finding confirmed the addition to Rs.2 lacs which is unjustified.
The CIT DR has supported the order of the Assessing Officer.
46. We have heard the rival contentions of both the parties and perused the material available on the record. The AO has made the disallowance stating that in absence of complete details, it is not possible for him to arrive at correct value of perquisites provided to employees and hence, he made an adhoc disallowance of Rs 20 lacs. The question that arises for consideration is how the valuation of perquisite in the hands of the employees will determine the allowability of expenditure incurred by the assessee on provision of such perquisites to its employees. The valuation of perquisites has been defined under section 17 of the Act and the same is relevant for the purposes of determining the taxability in the hands of the employees. Where there is any recovery by the employer from the employees, the same is adjusted while determining the value of the perquisite in the hands of the 43 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) employees. The valuation of perquisite is thus relevant for determining the taxability in the hands of the employee and not for the purposes of allowability of expenditure which has been incurred in provision of such perquisite by the employer. In the hands of the employer, what is relevant to determine is whether the expenditure incurred by the employer in provision of various perquisite is as per the terms of employment and other related contractual arrangements entered into with the respective employee or not and as per the employment policy of the assessee company. In the instant case, it is not the case of Revenue that the expenditure on perquisite has been incurred by the assessee which is not supported by the employment contract of the respective employees or not in accordance with the employment policy. Further, the necessary details in respect of perquisite provided to Shri K. N. Modi were provided in the assessment proceedings as apparent from the assessment order itself and in respect of all the employees during the remand proceedings. We therefore do not agree with the findings of the ld CIT(A) in this regard. The Ground no. 9 of assessee's appeal is allowed and ground no. 7 of revenue's appeal is dismissed.
47. The ground No. 10 of the assessee's appeal is against confirming the ad hoc disallowance of Rs. 25,00,000/- made by the Assessing Officer 44 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) out of interest payment. The AO observed that the department of Companies Affairs made an inspection u/s 209A. From the report it was revealed that company has either charged lower interest rate or gave interest free loans. This matter was also discussed in A.Y. 1996-97 & 1997-98 wherein also disallowance has been made. He further observed that the assessee has charged interest on margin money @ 9.30% whereas the interest is paid @ 16.82% on interest on term loan, 21.62% on interest on fixed deposits and 14.36% on interest to bank. Considering all these facts he made disallowance of Rs. 25 Lacs. During the course of remand proceedings, the assessee submitted following submission before the AO:
1. The AO observed that the department of Companies Affairs made an inspection u/s 209A. From the report it was revealed that company has either charged lower interest rate or gave interest free loans. This matter was also discussed in A.Y. 1996-97 & 1997-98 wherein also disallowance has been made. He further observed that the assessee has charged interest on margin money @ 9.30% whereas the interest is paid @ 16.82% on interest on term loan, 21 62% on interest on fixed
45 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) deposits and 14.36% on interest to bank. Considering all these facts he made disallowance of Rs.25 lacs.
2. At the outset we may point out that the fact of the year under consideration is different than the A.Y. 1996-97 and therefore based on the disallowance made in A.Y. 1996-97, no disallowance can be made in the year under consideration.
3. During the year under consideration, assessee has declared interest income of Rs. 1,04,62,088/- and paid interest of Rs. 12,45,57,497/-. The details of the interest paid is as under:-
Particulars of loan Interest paid Interest on term loan to the banks 8,58,75,976/- Interest paid to bank on working 78,59,621/- capital Interest paid to RSEB for delayed 2,98,74,021/- payment Interest paid on fixed deposit 4,75,735/- Interest paid to others 13,72,144/-
After excluding the interest paid on term loan, working capital and to RSEB, the interest expenditure on fixed deposit and to others is only Rs. 18,47,879/-. The interest paid to bank and RSEB is for commercial expediency and the fund has been used for the purpose for which the loan has been taken from the bank. There is no report of the company Affairs for the year under consideration wherein it is alleged that 46 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) assessee has charged lower rate of interest or gave interest free loans out of the borrowed funds taken at a higher rate. In these facts, the ad hoc disallowance of interest of Rs.25,00,000/- made by the AO is unjustified and be deleted.
After going through the assessee's submission, the AO in his remand report stated that "the assessee has produced books of account but details of ICD and justification etc. not yet produced by the assessee."
The Ld. CIT(A) thereafter confirmed the addition by holding that the appellant has stated that these deficiencies pertain to the earlier period and no observation relates to the current year. However, in the course of remand proceedings, sufficient evidence could not be produced before the AO on this issue. Accordingly, AO has made adverse remarks on this issue in the report. The appellant has in the cross reply failed to file any further evidence on this issue and has merely reiterated the submissions filed earlier. In view of these facts, the ld. CIT(A) held that appellant has failed to discharge the duty which lay upon him and confirm the addition of Rs. 25 lacs made by the AO on this ground.
During the course of hearing, the ld AR of the assessee has submitted that the AO in the remand report stated that assessee has 47 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) produced books of accounts but details of ICD were not produced by the assessee. It is submitted that the interest paid on ICD is only Rs.13,72,144/-.The ICD are used for purpose of business. There is no fresh ICD. It is coming from last year. The disallowance made in AY 1996-97 was deleted by the Hon'ble ITAT in ITA No.387/JP/1 dated 19.08.2016. The lower authorities have not brought out any evidence on record to show that funds has been utilised for the purpose other than business. Hence, the disallowance confirmed be deleted.
The CIT DR has supported the order of the lower authorities.
48. We have heard the rival contentions of both the parties and perused the material available on the record. It is submitted by the ld AR that the interest paid on ICD is only Rs.13,72,144/- and there is no fresh ICD and it is coming from last year where the disallowance made in AY 1996-97 was deleted by the Hon'ble ITAT in ITA No.387/JP/1 dated 19.08.2016. The matter is set-aside to the file of the AO to examine the above said contention of the assessee and where the same is found to be correct, the AO is directed to allow the necessary relief to the assessee following the order passed by the Coordinate Bench for AY 1996-97. The ground no. 10 is thus allowed for statistical purposes.
48 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A)
49. The 8th ground of the revenue's appeal is against the action of ld CIT(A) in deleting the disallowance of Rs. 60,00,000/- made by the Assessing Officer on account of interest on deposits with RSEB. The assessee has provided security deposit of Rs. 499.48 lace with the Jaipur Discom (RSEB). The AO observed in assessment proceedings that the assessee has filed the details of the security deposit only and nothing has been explained about the interest. Further even on specific pointing out through order sheet entry dated 25.01.2001, position regarding chargeability of interest has not been made clear. Accordingly, A.O. computed the interest on security deposit at Rs. 60,00,000/- at the rate of 12% and made addition for the same.
During the course of remand proceedings, the A.R. has furnished a certificate from JVVNL and copy of their office's order confirming that the interest is payable from 2004 onwards and submitted its reply which is as under: -
1. The assessee has provided security deposit of Rs.499.48 lacs with the Jaipur Discom (RSEB). The AO observed that in assessment proceeding, the assessee has filed the details of the security deposit only and nothing has been explained about the interest. Further even on 49 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) specific pointing out through order sheet entry dated 25-01-2001, position regarding chargeability of interest has not been made clear.
Accordingly, he estimated the interest on security deposit at Rs.60,00,000/- and made addition for the same.
2. We may point out that there was no condition that Electricity Company would pay interest on the security deposit. In fact prior to introduction of the Electricity Act 2003 there was no provision for payment of the interest on security deposit by the Electricity companies. Section 47(4) of the Electricity Act 2003 only provided that the Electricity company would pay the interest to the consumers on the security deposit taken by it. Thereafter the JVVNL for the first time made orders for payment of interest on the security deposit w.e.f. 13-08-2004 @ 6% p.a. Copy of the relevant document in this respect are at P.B.254-259A.
From these documents, it is evident that during the year under consideration, no interest is payable by the electricity company on the security deposit. Accordingly the addition of Rs.60,00,000/- made by the AO on notional basis is uncalled for and be deleted.
The AO thereafter in his remand report has stated that "The assessee has submitted a letter from JVVNL, M.I.A., Alwar bearing No. 50 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) 2594 that no interest was paid by JVVNL on security amount deposited in F.Y. 1997-98. The same was allowed to be paid by JVVNL w.e.f. 13.08.2004 per annum."
The Ld. CIT(A) thereafter deleted the addition made by the Assessing Officer by holding that these facts have been confirmed by the AO in the course of remand proceedings and accordingly, he held that there is no justification in the action of the AO in making an addition of interest income on estimated basis. Therefore, the addition of Rs. 60 lacs made by the AO was deleted.
The ld CIT DR has supported the order of the Assessing Officer.
At the outset, the ld AR of the assessee has submitted that the provision for payment of interest by State Electricity Boards on security deposits of the customers was inserted by the Electricity Act, 2003. As a result of this provision, interest is being received by the appellant from JVVNL, w.e.f 13.08.2004. This fact has been accepted by the AO in the remand report and thus, CIT(A) has rightly deleted the addition.
50. We have heard the rival contentions of both the parties and perused the material available on the record. The AO has stated clearly 51 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) in his remand report that "The assessee has submitted a letter from JVVNL, M.I.A., Alwar bearing No. 2594 that no interest was paid by JVVNL on security amount deposited in F.Y. 1997-98. The same was allowed to be paid by JVVNL w.e.f. 13.08.2004 per annum." Once there is a clear finding of fact given by AO that no interest was payable by JVVNL or receivable by the assessee for the year under consideration and ld CIT(A) has also taken cognizance of the same, we are unable to understand what prejudice is caused to the Revenue. The provision for payment of interest by State Electricity Boards on security deposits of the customers was inserted by the Electricity Act, 2003 and interest is being received by the appellant from JVVNL, w.e.f 13.08.2004. In absence of any specific provision in the Electricity Act, 2003 which governs the terms of arrangement between the assessee and JVVNL, the imputed interest cannot be said to have accrued to the assessee company. We accordingly donot find any infirmity in the order of ld CIT(A) in deleting the disallowance of imputed interest of Rs 60 lacs. The revenue's ground no. 8 is thus dismissed.
51. The 9rd ground of the revenue's appeal is against deleting the disallowance of Rs. 50,00,000/- made by the Assessing Officer on account of valuation of stores and spares. The assessee has shown the 52 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) valuation of the stores and spares at Rs. 498.77 lacs as on 31.03.1998 as per Schedule G of the printed balance sheet. The AO observed that in assessment proceedings, the assessee was asked to file the details of the valuation of the stores and spares but neither such details were filed nor any vouchers in support of the valuation was filed and therefore he presumed that it is not possible to ascertain the basis of the valuation and genuineness of the same. Accordingly, he made a lump sum addition of Rs. 50 Lacs. During the course of remand proceedings, the A.R. has furnished store ledger and submitted his reply which is as under: -
1. The assessee has shown the valuation of the stores and spares at Rs.498.77 lacs as on 31-03-1998 as per Schedule G of the printed balance sheet. The AO observed that in assessment proceeding, the assessee was asked to file the details of the valuation of the stores and spares but neither such details were filed nor any vouchers in support of the valuation was filed and therefore he presumed that it is not possible to ascertain the basis of the valuation and genuineness of the same. Accordingly, he made a lump sum addition of Rs.50 lacs.
2. We may point out that in assessment proceeding the assessee vide letter dated 23-10- 2010 explained that the method of
53 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) inventory valuation is mentioned at point no.5 of the accounting policy. As per this the assessee is regularly valuing the closing stock of stores and spares at cost. The assessee is maintaining day to day stock register in the computer system and stock is accordingly valued at cost as per the software itself. Sample copy of the stores ledger generated from the computer are placed at P.B. 260-272. From the stores ledger it can be noted that the stores and spares are correctly valued by the system. In A.Y. 1999-2000, the value of the closing stock of stores and spares as on 31/3/1998 has been considered as opening stock of stores and spares. If the value of the closing stock of stores and spares is increased in the year under consideration than direction be given to increase the value of the opening stock as on 01-04-1998. As a result there will be no impact on the overall income of the assessee.
In view of the above facts, the lump sum addition of Rs.50 lacs made by the AO is uncalled for and be deleted.
The AO has thereafter stated in his remand report that "The assessee has produced store ledger and test checking we have observed that the valuation of stores spares has been done 'at cost'."
The ld CIT DR has supported the order of the Assessing Officer.
54 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A) At the outset, the ld AR of the assessee has submitted that the AO has verified the stock register of stores and spares with relevant vouchers on test check basis in the course of remand proceedings and submitted that stock of stores and spares has been valued at cost. Thus, CIT(A) has rightly deleted the addition.
52. We have heard the rival contentions of both the parties and perused the material available on the record. The Ld. CIT(A) deleted the addition made by the Assessing Officer by holding that the appellant has stated that the closing stock of stores and spares is valued at cost and has filed complete details of the computerized copy of the stock ledger. The AO has verified the stock register of stores and spares with relevant vouchers on test check basis in the course of remand proceedings and given his finding that stock of stores and spares has been valued at cost. In view of these facts, the ld CIT(A) has deleted the addition of Rs. 50 lacs made by the AO. Where the stock has been valued by the assessee as per accepted accounting policy at cost and the same has been verified by the AO to be in consonance with the said policy, we do not see any infirmity in the order of the ld CIT(A) in confirming the disallowance of such addition. The ground no. 9 of revenue is thus dismissed.
55 ITA 813 & 812/JP/2014_ M/s Lord Chloro Aklali Ltd. Vs JCIT (A)
53. In the result, the assessee's appeal as well as revenue's appeal is partly allowed for statistical purposes.
Order pronounced in the open court on 17/11/2016
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(Kul Bharat) (Vikram Singh Yadav)
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fnukad@Dated:- 17th November, 2016
*Ranjan
vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- M/s Lord Chloro Alkali Limited, Alwar.
2. izR;FkhZ@ The Respondent- The JCIT(A),SPL Range/ACIT, Circle-1, Alwar.
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr@ CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No. 813 & 812/JP/2014) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar