Income Tax Appellate Tribunal - Indore
Surya Trading Corporation, Bhopal vs Department Of Income Tax on 7 November, 2007
IN THE INCOME TAX APPELLATE TRIBUNAL,
INDORE BENCH, INDORE
BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARMA, A.M.
PAN NO. : AACCS1449N
I.T.(SS)A.No. 18/Ind/2006
Block Period : 01.4.1996 to 25.10.2002
M/s.Sanwaria Agro Oils ACIT,
Limited, 1(1),
Bhopal. vs Bhopal
Appellant Respondent
PAN NO. : AACCS1449N
I.T.(SS)A.No. 23/Ind/2006
Block Period : 01.4.1996 to 25.10.2002
ACIT, M/s.Sanwaria Agro Oils
1(1), Limited,
Bhopal vs Bhopal.
Appellant Respondent
PAN NO. : AACCS1449N
I.T.A.No. 299/Ind/2008
A.Y. : 2005-06
ACIT, M/s.Sanwaria Agro Oils
1(1), Limited,
Bhopal vs 24-28, Kheda, Industrial
Area,
Itarsi,
Distt. Hoshangabad
Appellant Respondent
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PAN NO. : AACCS1449N
C.O. No. 57/Ind/2008
(Arising out of I.T.A.No. 299/Ind/2008)
A.Y. : 2005-06
ACIT, M/s.Sanwaria Agro Oils
1(1), Limited,
Bhopal vs Bhopal.
Appellant Respondent
PAN NO. : AAOFS4933Q
I.T(SS).A.No. 22/Ind/2006
Block Period : 01.4.1996 to 25.10.2002
ACIT, M/s. Surya Trading
1(1), Corporation,
Bhopal vs 9th Lane,
Itarsi
Appellant Respondent
PAN NO. : AAOFS4933Q
I.T.A.No. 517/Ind/2007
A.Y. : 2003-04
ACIT, M/s. Surya Trading
1(1), Corporation,
Bhopal vs 9th Lane,
Itarsi
Appellant Respondent
Assessee by : Shri Anil Khabya, C. A.
Department by : Shri Darshan Singh,
CIT DR
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ORDER
PER R. C. SHARMA, A.M.
I.T(SS)A.Nos. 18 & 23/Ind/2006 :
These are the cross appeals filed by the assessee and Revenue against the order of CIT(A) for the block period 01.04.1996 to 25.10.2002 in the matter of order passed by the Assessing Officer u/s 158BC read with Section 143(3) of the Income-tax Act, 1961.
2. Rival contentions have been heard and records perused.
3. The facts, in brief, are that the search and seizure action u/s 132(1) of the Income-tax Act, 1961, was carried out on 23.10.02 and 24.10.02 at the factory premises at Industrial Area, Itarsi and at the office premises at 9th Lane, Itarsi.
During the course of search and seizure action at the premises cash, books of account and loose papers etc. were found and out of which books of account and loose papers were seized. Further there was a constructive seizure of the excess stock of soyabean, wheat, Grams, gums and soya refined oil on 3
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24.10.02. While completing assessment u/s 158BC, the AO made following additions :-
Total undisclosed income
declared as per block return :
Add :
On account of stock Rs.25,67,436/-
On account of unexplained Rs. 75,000/-
expenses in furniture and
other items
On account of unrecorded Rs. 2,29,724/-
purchase of plywood
On account of loose papers Rs. 1,90,700/-
On account of transaction Rs. 1,47,420/-
with Surya Trading
Corporation
On account of Benami Rs.56,13,228/-
transactions in the name of
Surya Trading Corporation
Total : Rs.88,23,508/-
Or say Rs. 88,23,510/-
4. First ground of the assessee was with regard to the fact that assessment was barred by limitation, therefore, deserves to be annulled.
5. We have considered the rival contentions and found from record that search operation was conducted on 4
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23.10.2002. Normal time limit for completion of block assessment was available up to 31.10.2004. However, the AO referred the matter for special audit u/s 142(2A) of the Income-tax Act, 1961, on 29.10.2004. As the case was referred for Special Audit, the AO relied on Explanation 1 to Section 158BE(1)(b) and completed assessment on 5.5.2005. There is no infirmity in the order of the AO with regard to the limitation period in so far as Explanation 1, Clause (b) provided that while computing period of limitation for the purpose of Section 158BE, the period commencing from the day on which the AO directs the assessee to get its account audited u/s 142(2A) and ending on the day on which the assessee has requested to furnish a report of such audit under that sub section, shall be excluded. If we exclude the period taken by the Special Audit or as provided under clause (ii) of Explanation 1, the assessment so completed u/s 158BC on 5.5.2005 was well within statutory time limit. Accordingly, ground no.1 raised by the assessee is dismissed.
6. Next addition was made by the Assessing Officer with regard to unexplained investment in stock of soyabean 5
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amounting to Rs. 9,15,840/-, out of which the ld. CIT(A) deleted the addition of Rs. 3 lakhs. Both the assessee and Revenue are in appeal before us.
7. We have considered rival contentions and find that addition was made on account of physical stock of Soyabean seeds taken at the factory premises during the course of search. While taking the physical stock, the AO has also taken 280 bags of soyabean, which was received for work in progress. The ld. CIT(A) has correctly observed that 280 bags of soyabean, which was in progress was required to be reduced from the excess stock of soyabean worked out by the Assessing Officer weighing 76.32 M. T. Thus, it was found that addition in respect of unexplained investment in soyabean seeds was tobe made in respect of 51.32 M. T., the value of which was worked out by the ld. CIT(A) at Rs. 6,15,840/-.
Accordingly, the relief given by the ld. CIT(A) was Rs. 3 lakhs and the addition was restricted to Rs. 6,15,840/-. We do not find any infirmity in the order of CIT(A) for allowing credit of 280 bags of soyabean, which was stated to be work in 6
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progress. Accordingly, the ground taken by the Revenue and assessee both are dismissed.
8. The AO has also made addition on account soyabean refined oil amounting to Rs. 14,43,600/- by treating the same as unexplained investment while computing excess stock of soyabean refined oil. In this regard, the ld. CIT(A) observed that oil under process weighing 36.985 M. T. was not includible and only refined oil in tanks weighing 262.215 M. T. should have been taken by the Assessing Officer. It was found by the ld. CIT(A) that if refined oil under process is excluded, then excess refined oil in tank and as per books of account is worked out to be 1.511 M.T. Accordingly, the ld. CIT(A) restricted the addition in terms of weight weighing 1.511 M. T. and excluded 36.985 M. T., which was stated to be in process.
The ld. CIT(A) also found that proper records are maintained in respect of finished soyabean refined oil and ,accordingly, whatever soyabean refined oil was found in search was found in tank was the same and required to be compared with soyabean refined oil as recorded on the date of search in the books of account. Accordingly, the addition on account of 7
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soyabean refined oil was restricted to Rs. 57,000/-. We do not find any infirmity in the order of the ld. CIT(A). Grounds taken by both assessee and revenue are dismissed.
9. The AO has also made addition with reference to 812 bags of gram alleged to be stored at Shrinathji Warehousing Corporation. The ld. CIT(A) found that 812 bags of gram do not belong to the assessee but were owned by the firm M/s.
Nathuram Shrinarayan Agarwal, which is a separate assessee. After recording the finding that 812 bags of gram was owned by Nathuram Shrinarayan Agarwal, the CIT(A) deleted the addition. This finding has not been controverted by revenue. We do not find any infirmity in the order of the ld. CIT(A) for deleting the addition of Rs. 1,81,440/- in respect of grams.
10. Next grievance of the Revenue relates to deletion of addition of Rs. 56,13,228/- of M/s. Surya Trading Corporation.
11. The facts, in brief, are that the loose papers marked as m/s. SAOL - BS/SAOL/76 were seized from the assessee's business premises. It was a diary and contains records of several transaction. The assessee tried to correlate the 8
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transactions with the entries in the books of account. Most of the transactions could not be tallied. After recording detailed finding with regard to these transactions at page nos. 11,12,13 & 14 of the assessment order and after recording statement of Shri Bhagwandas Bansal, Santosh Kumar Tiwari, Dinesh Choudary, Kanhaiyalal Jain, the AO reached to the conclusion that Surya Trading Corporation is a benami concern of the assessee, therefore, the entire amount worked out of these documents were treated as assessee's income. Following was the precise observation of the AO in this regard :-
"All the above statements of Shri Bhagwan Das Bansal, Smt Kusum Tiwari, Shri Santosh Tiwari, Shri Dinesh Chawdhary, Shri Kanhaya lal Jain , Shri Satish Agarwal and Shri Ashok Agarwal clearly indicate the fact that M/s. Surya trading Concern is a benami concern of Sanwaria Group. The facts and circumstances of the case shows that Shri Bhagwan das Bansal is a mere worker in M/s. SAOL and being a relative he looks after the factory and manages the work there. The facts clearly 9
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indicate the Smt Kusum Tiwari has lent her name for the firm. Her absence during the recording of the statement of Sh Santosh Tiwari and his confession that under the direction of Sethji ( Sh RN Agarwal) she was sent to other place at Itarsi clearly indicate that out of fear she was sent to some other place so that no information can be gathered from her and no enquiry from her can be made. The statement of Sh Dinesh Chaudhary bring out the fact that all the official works are carried out by him and no salary from M/s. STC is given to him. His statement that Shri Ashok Agarwal controls the affairs of the firm also corroborates the fact that it is being managed by the Agarwal family. Even the accountant are same for all the concerns of Sanwaria group and STC. The books of accounts and other important documents were found at the business premises of SAOL clearly establishes the fact that Agarwal family controls its affairs. When confronted Sh 10
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Ashok Agarwal could not give any convincing reply to the questions asked to him regarding the statements of Sh Bansal and Sh Chaudhary and the fact that STC is being controlled by the members of Agarwal family only.
Now the financial aspect of STC is needed to be analysed. The assessee (STC) deals in trading of soyabeen, soyameal, wheat, chana and rnasur. It is alleged that -" Instead of selling soyameal (DOC) directly to the outside party, SAOL sells it on paper to STC at a lower price which then shows sale to outside party at a higher price. It is alleged that it appears that the expenses are being inflated in hands of STC so as to show minimum profit or no profit. In this manner the profit at SAOL is being suppressed. Had SAOL made direct sales to the outside party its profit would have been substantially increased. Therefore, the difference in purchase and sale price of DOC shown to have purchased by STC is in fact the suppressed profit of SAOL" 11
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12. The AO worked out total purchase and sale of wheat, gram/soyabean and computed total profit of Rs. 58,86,001/- earned by STC, as this firm was held to be benamidar of the assessee, entire amount was included in assessee's income as undisclosed income as A.O.L. By the impugned order, the ld. CIT(A) deleted the entire addition after observing as under :-
"I have very carefully considered the submissions of the Ld.Counsel in this regard. I have also very carefully gone through the detailed findings given by the AO in the order on this issue and after due consideration I find that AO was not at all justified in making addition of Rs. 56,13,228/- firstly because the sum of Rs. 56,13,228/- is a business income of block period of M/s. Surya Trading Corporation on the basis of audited accounts without considering the expenses debited in the profit and loss account in the block period except the expenses on transportation on railways and secondly such 12
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income is not based on any evidence found during the course of search. Disclosed business income of Surya Trading Corporation cannot be treated as undisclosed income of the appellant by any stretch of imagination. Undisclosed income is to be computed only on the basis of evidence found during the course of search.
No evidence was found of on any nature which could justify the action of the AO to treat the disclosed business income of Surya Trading Corporation as undisclosed income of the appellant. AO has not discharged the onus to prove the benami nature of Surya Trading Corporation of the appellant. AO had no where recorded the finding that Surya Trading Corporation is a benami concern of the appellant. AO had given only vague finding that M/s. Surya Trading Corporation is a benami concern of Sanwaria Group. I therefore hold that AO was not at all justified in treating the 13
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disclosed business income of the block period of Surya Trading Corporation as undisclosed income of the appellant. This addition being unsustainable in law as the same is not based on any evidence found in the search is hereby deleted."
13. We have carefully considered the rival contentions and found from record that various documents were found during course of search and thereafter AO recorded statement of various partners and employees of the assessees and reached to the conclusion that transaction recorded in the loose papers/diary was pertaining to the business of M/s. Surya Trading Corporation. In terms of the statement so recorded, it was found that M/s. Surya Trading Corporation was actually belonged to the assessee, therefore, entire income worked out of these transactions amounting to Rs. 56,13,228/- was added in assessee's income. The ld. CIT(A) deleted the entire addition just by stating that M/s. Surya Trading Corporation is a separate entity. The ld. CIT(A) also 14
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observed that disclosed business income of the M/s. Surya Trading Corporation cannot be treated as undisclosed income of assessee firm by any stretch of imagination. We do not find any merit in the CIT(A)'s action in so far as he has not controverted the detailed findings recorded by the Assessing Officer with regard to the transactions recorded on various loose papers found during course of search vis-à-vis statement of the partners of the assessee firm and employees recorded during the course of search. Even nothing was brought on record by the assessee to substantiate that such income was disclosed to the Department at any time. The contention of the ld. Authorized Representative before us was that M/s. Surya Trading Corporation is an independent entity and the ld. CIT(A) has recorded the categorical finding that the AO has not discharged the onus to prove the benami nature of M/s. Surya Trading Corporation and no where recorded a finding that M/s. Surya Trading Corporation is a benami concern of the assessee.
14. The observations made by the ld. CIT(A) is not based on any documents nor he has controverted the findings 15
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recorded by the Assessing Officer with respect to the transaction recorded on various loose papers found during course of search nor the statement of various persons as recorded during search was controverted by the ld. CIT(A). Therefore, in the interest of justice and fair play, we restore the entire issue back to the file of CIT(A) for deciding afresh after giving due opportunity to the assessee to substantiate its claim that M/s. Surya Trading Corporation is an independent entity who has paid due taxes on its income. It is pertinent to mention here that various expenditure was found recorded either in the loose papers or in the profit and loss account of M/s. Surya Trading Corporation, which are required to be taken into consideration while working out net income earned out of these transactions. If during the course of search, entries are found recorded with reference to the certain expenditure, same is required to be taken in to consideration for arriving at the net income from these transactions. The AO cannot ignore the entries with regard to expenditure recorded therein while taking the net income out of these transactions. We, therefore, direct the CIT(A) to rework-out the correct profit 16
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arising out of these transactions after giving due credit of the expenditure incurred for these transactions. We direct accordingly.
15. Next grievance of the assessee relates to the addition of Rs. 75,000/- on account of alleged investment in house hold furniture.
16. Rival contentions have been heard and records perused. During the course of search, the house hold goods worth Rs. 2,29,500/- were found. These house hold goods were purchased for use of guests at Bhopal since 1992 by the assessee. All these items of furniture were very old, therefore, the assessee was not in a position to state the year in which such goods were purchased. However, no evidence was found in search that these items were purchased during the period falling in the block period. The ld. CIT(A) also recorded a finding that guest house in Bhopal was since 1992. The assessee has also tried to give details of various items. Without bringing any cogent material on record, the AO has worked out Rs. 75,000/- as item of furniture acquired during the block period as unexplained. We do not find any merit in the 17
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action of the AO. Since these were the old furniture and acquired during the period falling beyond the block period, no addition is warranted with respect to such old furniture found during search. The AO is directed to delete the same.
17. Next grievance of the assessee relates to the addition of Rs. 2,29,724/- on account of alleged investment in purchase of ply wood.
18. Rival contentions have been heard and records perused. During the course of search, total purchase of ply wood at Rs. 4,82,433/- was found, out of which purchase worth Rs. 2,52,709/- was found recorded in the books of the assessee, therefore, the balance was added by the Assessing Officer in assessee's income. By the impugned order, the ld. CIT(A) confirmed the addition. Contention of the ld. Authorized Representative was that an addition of Rs. 86,595/- was already made in the hands of Shri Anil Agarwal and was again made in the hands of the assessee company. To the limited extent to verify the fact of addition of Rs. 86,595/- having been made in the hands of Shri Anil Agarwal, matter is restored back to the file of the AO for deciding afresh. Balance addition 18
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is confirmed, as nothing was brought on record by the ld. Authorized Representative to controvert the finding recorded by the Assessing Officer with regard to the total purchases of ply wood and its entry in the regular books of account.
19. Next issue pertains to addition of Rs. 1,90,700/- on account of alleged entries in diaries found during course of search.
20. The AO has discussed this issue on page 10 in para 4. AO has referred to the document seized from the business premises of the assessee which is a diary and which contains the record of certain transactions. AO required the assessee to explain the notings as found recorded in these diaries. He found that certain payments were made as per these transactions and total payments amounted to Rs. 1,90,700/-. AO found that these amounts are not found recorded in the regular books of the assessee. Assessee submitted before the AO that it was a personal diary of the employee and denied to have made any payment as found mentioned in the diary. However, AO has not accepted the explanation of the assessee and made addition of Rs. 1,90,700/- on account of 19
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transactions found recorded in the diary and which are not reflected in the regular books of the assessee.
21. By the impugned order, the ld. CIT(A) confirmed the addition. Nothing was brought on record by the ld. Authorized Representative to controvert the findings recorded by the lower authorities. We, therefore, confirm the addition of Rs.1,90,700/- made by the Assessing Officer.
22. With regard to the addition of Rs. 1,47,420/- on account of settlement of transaction with M/s. Surya Trading Corporation, the contention of the ld. Authorized Representative was that the claim of loss was genuine and it was not a bogus claim of loss. Therefore, the AO was not justified in making the addition.
23. We have carefully considered the rival contentions and found that even in the special audit report u/s 142(2A) the auditor has observed that loss of Rs. 1,47,420/- claimed by the assessee was a false claim. Therefore, the same deserves to be added. Nothing was brought by the lower authorities to persuade us to deviate from the observations made by the 20
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lower authorities and also by the Special Auditor. Accordingly, we confirm the addition made by the Assessing Officer.
24. In the result, the appeal of the assessee and Revenue are allowed in part in terms indicated hereinabove. I.T.A.No. 299/Ind/2008 & C.O. No. 57/Ind/2008 :
25. This appeal filed by the Revenue and cross objection by the assessee are against the order of CIT(A) for the assessment year 2005-06.
26. Rival contentions have been heard and records perused.
27. The facts, in brief, are that the assessee is a company engaged in the manufacturing and trading in commodities. In the course of assessment, the AO observed that during the year under consideration sales are shown at Rs. 1,74,75,27,850/-. Net profit for the year has been worked out at Rs. 4,29,90,690/-. This is in comparison to sales of previous year of Rs. 2,57,93,99,003/- which resulted into profit before tax amounting to Rs. 8,99,04,076/-. It has been noted that the assessee has carried out manufacturing as well as trading activity during the year.
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28. The AO found that the assessee has suppressed value of its closing stock by valuing the same at lower price. He observed that while inventories as per the balance sheet are Rs. 29,98,08,791/-, the figure of inventory in the P&L is a derived figure in Schedule-M. Scheule-M mentions the closing stock at Rs. 4,81,66,073/-. This figure as well as the figure of opening stock mentioned at Rs. 8,25,92,292/- does not match with the respective figures of inventory in the balance sheet. These figures have indirectly been accounted for in the consumption of material figure mentioned in the cost of material. As a result of these manipulations, the profit and loss account including the annexure does not reveal the true and correct figures of opening and closing stock as well as purchase made during the year. After tabulating opening price, purchase price and the price taken by the assessee for computing closing stock the AO have worked out the difference at Rs. 5,46,51,030/- break up of which is as under
:-
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S.No. Particulars Under valuation of
closing stock
Amount
(Rs.)
1. Soyaseed - Yellow - Good 8613342.86
2. Soyaseed - Yellow - Damage 17495000.00
3. Soyaseed - Black - - Good 717772.83
4. DRB Stock - Yellow - Good 6002160.00
5. DRB Stock - Yellow - Shortage 16348442.00
6. Soya oil 681660.00
7. Refined oil loose 3733101.00
8. Crude oil 754120.00
9. Coal 305431.00
Total R/o Rs. 54651030.00
29. By the impugned order, the ld. CIT(A) deleted the addition.
30. It was contended by the ld. CIT DR that the AO has correctly valued the closing stock as per the closing rates of the various goods and without bringing any cogent material on record, the ld. CIT(A) has deleted the addition. He further mentioned that at pages 5, 6 & 7, the AO has very elaborately brought on record the rate of opening stock, rate of purchase rate of closing stock in different items like soyabean seeds, yellow soyabean, soyabean seeds black, DRB stock yellow.
Soya oil, refined oil loose, crude oil, coal etc. and after applying the rate of closing stock, the AO has correctly worked 23
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out the of stock and difference was added in assessee's income.
31. On the other hand, the ld. Authorized Representative submitted that the CIT(A) has worked out average price of soyabean during the year at Rs. 13,249/- per m. T. as against opening stock value of Rs. 16,450/- per M. T, which itself goes to show that during the year, there was sharp fall in value of soyabean. Since the price of raw material has fallen, the price of finished goods also declined during the year, therefore, the ld. CIT(A) has correctly taken the value of closing stock. As per ld. Authorized Representative, no interference is required in the order of the ld. CIT(A).
32. We have carefully considered the rival contentions and found from record that the AO has made detailed exercise for working out the value of closing stock with respect to each and every item the assessee was dealing with. However, it appears that the assessee has also furnished copy of some of the purchase bills indicating lower prices as at the end of the year.
As per considered view, the closing stock is to be valued as per cost or market price, whichever is lower. However, the ld. 24
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CIT(A) has not controverted the various values brought on record by the Assessing Officer for arriving at the value of closing stock along with rates and quantity . CIT(A) has proceeded on general observation rather than dealing with the rates quoted by the Assessing Officer in his order for arriving at closing value of stock possessed by assessee. We, therefore, set-aside the order of the CIT(A) and matter is restored back to the file of CIT(A) for deciding the value of closing stock in terms of its cost price or market price, whichever is lower as per accounting principles. The assessee is at liberty to submit necessary evidence before the AO for arriving at the correct valuation of the closing stock. The AO shall decide the matter afresh.
33. In the result, ground nos. 1, 2 & 3 of Revenue's appeals are allowed for statistical purposes.
34. Next addition has been made by the Assessing Officer with regard to the bad debts written off by the assessee in its books of account amounting to Rs. 23,51,188/-.
35. In this regard, we found that during the course of assessment, the AO has asked the assessee to furnish details 25
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of such bad debts, so as to find out whether condition with regard to such amount having been recorded as income in the earlier years can be found due. However, the assessee has not furnished in details. In an appeal filed before the CIT(A), the addition was deleted by observing that there is only one account, which is written off in the profit and loss account and details of that are available in the books of account examined by the Assessing Officer. We do not find any merit in the CIT(A)'s action in so far as before allowing any claim of bad debts u/s 36(1)(vii), conditions as mentioned u/s 36(ii) is required to be fulfilled, which, inter alia, provides that no such deduction shall be allowed unless such debts has been taken in to account in computing the income of the assessee of the earlier year. Since the assessee has not furnished details, the AO could not verify this condition as having been fulfilled. In the interest of justice, we restore this issue back to the file of AO and assessee is directed to furnish details of such bad debts and the details with regard to such amount having been accounted as income in earlier years, so that the AO may decide the issue afresh. We direct accordingly. 26
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36. The AO has also made addition on account of training and development expenditure incurred by the assessee by observing that the assessee has incurred these expenses for education of Mr. Rajul Agrawal at Kardiff University (UK) for MBA course. The expenses include everything from travel to fee payable to living expenses in U.K. The assessee was asked to justify how these expenses can be termed as training and development expenses incurred wholly and exclusively for business purposes. The assessee has replied vide letter dated 07.11.2007 which is partly reproduced as below :-
" Due to policy of reservation it has become extremely difficult for family members of "Bania Cast" to seek admission in good institutions....
..... The management of company being traditional family management feel it prudent not to rely on hired executives because they are uncommitted, expensive and hard to retain."
37. By concluding that expenditure was incurred on the family members, therefore, the same cannot be treated as 27
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wholly and exclusively for the purpose of business, the AO disallowed entire sum of Rs. 22,17,683/-.
38. By the impugned order, the ld. CIT(A) restricted the disallowance to the extent of 25 % of the expenditure by treating the same as personal in nature. Accordingly, out of total addition of Rs. 22,17,683/-, the ld. CIT(A) deleted addition of Rs. 16,63,262/-, both assessee and Revenue are in appeal before us against the order of ld. CIT(A).
39. We have carefully considered the rival contentions and found from record that the assessee company has spent this amount on education for one of the Directors, Shri Rajul Agarwal at Kadif University of U.K. for doing M.B.A. Course. As the assessee company has planned to enhance its Soya Crushing capacity up to 1800 M. T. The company also proposes to manufacture and market other Soya Products. The Company is also planning diversification into power generating facilities. All this requires trained manpower having acquaintance with modern techniques. Due to policy of reservation, it has become extremely difficult for family members of 'Bania' caste to seek admission in good 28
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Institutions. The Management of Company, being traditional family management, feel it prudent not to rely on hired executives. They are uncommitted, expensive and hard to retain. All these factors were considered by the Board and decided to send to Cardiff University, England to acquire management degree in a good foreign institute and serve the Company on return.
40. We do not find any reason to treat the expenditure as having been incurred as personal in so far assessee is a Limited Company and for its better management, it had decided that one of its Directors should join M. B. A. Course for betterment of assessee's business. Accordingly, we delete the entire addition made by the Assessing Officer.
41. In the result, the ground taken by the Revenue is dismissed, whereas ground taken by the assessee is allowed.
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42. Next grievance of the Revenue relates to the addition of Rs. 20 lakhs on account of disallowance u/s 40A(2B) of warehouse expenses. But from the record, we found that the assessee company was storing its goods in the warehouses owned by its sister concern. The warehouse charges have been paid to that concern. The prescribed authority has licensed the warehouse and the authority has approved the warehouse charges. During the course of assessment proceedings, detailed information of goods stored in the warehouse, number of days goods were stored etc., was filed on record.
43. Without referring to the prevailing market rate of such warehouses charges, the AO had made disallowance by invoking provisions of Section 40A(2b). As per our considered view, while making any disallowance u/s 40A(2b), the onus lies on the Revenue to prove that the assessee has incurred expenditure on the sister concern more than prevailing market 30
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rate. However, in the instant case before us, nothing was brought on record by the Assessing Officer to substantiate that the assessee has paid charges to its sister concern which is more than the prevalent market rate. We found that the prescribed authority has licensed warehouses and the authority has approved the warehousing charges, therefore, there is no reason to disallow any part of such charges by invoking provisions of Section 40A(2b) without bringing on record any material to suggest that the assessee has paid more than the prevailing market rate.
44. In the result, the addition deleted by the ld. CIT(A) is upheld.
45. Next grievance of the Revenue relates to the deletion of addition made on account of Keyman policy.
46. We have carefully considered the rival contentions and found that the assessee has paid keyman insurance policy to the insurance company. The assessee has entered into contract of insurance with the insurance companies to insure key management persons of the Company. The assessee has entered into these contracts during the financial year and paid 31
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the premium by way of cheques, which were realized within a week after close of accounting year. The AO has disallowed the expenditure merely on the ground that the cheques was realized next year.
47. The CIT(A) deleted the addition by observing that when payment is made by cheques, once a cheques is honoured, the effective date of payment relates back to the date of cheques. We do not find any infirmity in the order of the CIT(A) for deleting the addition.
C.O. No. 57/Ind/2008:
48. In the cross objection, the assessee has also taken grounds for disallowance of commercial tax of Rs. 13,21,911/- paid during the year. In this regard, we found that the assessee has paid purchase tax on Rs. 13,21,911/-, this amount was not claimed in the profit and loss account as expenses. However, before the CIT(A), it was contended that the assessee has paid the purchase tax in advance as per direction of the Hon'ble High Court and since the assessee has challenged the provisions of introduction of purchase tax as introduced during the year in the High Court, the assessee did 32
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not charge this payment in the profit and loss account but showed it as advance. Contention of the assessee was that it was claimed in the computation of income. However, nothing was brought on record by the assessee to say that it was claimed in the computation of income. As per the observation of the CIT(A), this amount was also not claimed in the computation of income nor any claim was made before the AO. We, therefore, do not find any merit in the contention of assessee for allowing such claim which has neither accrued nor claimed as expenditure in the profit and loss account or in the computation of income.
49. In the result, both the appeals of the Revenue and cross objection of the assessee are allowed in part in terms indicated above.
I.T.A.No. 517/Ind/2007 :
50. This is an appeal filed by the Revenue against the order of CIT(A) for the assessment year 2003-04, in the matter of order passed u/s 143(3) of the Income-tax Act, 1961. 33
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51. First grievance of the Revenue relates to the addition of Rs. 5,16,761/- made by the Assessing Officer out of claim for shortage.
52. The facts, in brief, are that the assessee is engaged in trading of soyabean products. A shortage of Rs. 3,96,856/- was claimed. During the course of assessment, the assessee was asked to furnish details of shortage and rebate etc. debited in the profit and loss account. The assessee vide its reply has given copy of account with a list of amount and names of parties. By observing that since there is no communication or brief from the authorities with regard to such shortage as claimed by the assessee, the AO declined the deduction. By the impugned order, the ld. CIT(A) deleted the addition just by observing that the AO did not make any inquiry from the parties, therefore, disallowance was not justified. We do not find any merit in the CIT(A)'s action in so far as powers of the CIT(A) are co-terminus with that of the AO and if the AO has failed to do the same, CIT(A) is fully competent to do the same. Without recording any positive finding, deletion of disallowance by the ld. CIT(A) is not 34
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justified. We, therefore, set aside the order of CIT(A) on this ground and the matter is restored back to the file of AO with direction to the assessee to file details of such shortage alongwith confirmations from parties and the AO is to decide the issue afresh after giving due opportunity to the assessee.
53. In the course of assessment, the AO has also disallowed salary paid to the partners by observing that the assessee is a benami firm of M/s. Sanwaria Agro Oils Limited, Itarsi. Without controverting this finding, the CIT(A) deleted the disallowance of salary by observing that in the appellate proceedings, in case of Sanwaria Agro Oils Limited, the finding of benami has not been accepted. We do not find any merit in CIT(A)"s action, in so far as the decision of CIT(A) in the case of SOAL was not final and the same was also challenged by the Revenue before the Tribunal. Furthermore, without recording any finding giving justification for the deletion, the CIT(A) has wrongly deleted the disallowance without controverting the findings of the AO. In the interest of justice, we restore this ground also back to the file of the AO for deciding afresh after considering the actual services rendered by these partners and 35
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the terms of the partnership deed providing for such remuneration. We direct accordingly.
54. In the result, the appeal of the Revenue is allowed for statistical purposes.
I.T(SS).A.No. 22/Ind/2006 :
55. This is an appeal filed by the Revenue against the order of CIT(A) dated 10.1.2006, in the matter of order passed u/s 158BC of the Income-tax Act, 1961.
56. The facts, in brief, are that the assessee is a firm claimed to be having Shri Bhagwandas Bansal and Kusum Tiwari as partners. There was a search u/s 132(1) on 23.10.2002 at the factory premises at Industrial Area, Itarsi, and at the office premises at 9th Lane Itarsi of M/s. Sanwaria Agro Oils Limited, Itarsi (SAOL) and at the office premises of M/s. Surya Trading Corporation (STC). During the course of search and seizure action many loose papers documents, bank related documents and books of account of M/s. Surya Trading Corporation were found at the office and factory premises of SAOL. In the block assessment order of SAOL, the undisclosed profit generated by SAOL in the name of STC has 36
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been computed and the same has been added to the undisclosed income of the SAOL.
57. While framing assessment u/s 158BC, the AO has also made protective addition in the hands of assessee firm with respect to the amount which have already been assessed in the hands of SAOL on substantive basis, by taking the assessee firm as benamidar. Once the amount has already been added on substantive basis in the hands of SAOL, there is no merit for such addition on protective basis in the hands of the assessee firm, which has already been treated as benamidar of SAOL. The ld. CIT(A) deleted the addition after having the following observations:-
"I have very carefully considered the submissions of the learned counsel in this regard. I have also seen the reasons given by the Assessing Officer for holding the appellant as benami concern and for making the addition on protective basis amounting to Rs. 56,13,228/-. After due consideration in the matter, I hold that the AO was not justified in treating the disclosed income of the appellant of the 37
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block period as undisclosed income of the appellant. Since a sum of Rs. 56,13,228/- is disclosed income of the appellant, it does not seem to be of any justification to treat it or to take as income on protective basis. Since income of Rs. 56,13,228/- is based on disclosed facts as per audit accounts of the appellant for the block period, the same cannot be by any stretch of imagination treated as undisclosed income of any one. Since addition as made by him in protective basis amounting to Rs. 56,13,228/- is not based on any evidence found during the course of search except the books of account wherein such profit are duly reflected, the addition made by the Assessing Officer is unsustainable in law and same is hereby deleted."
58. The issue with regard to treatment of assessee firm STC as benamidar of SAOL has been dealt by us elaborately at para 10 to 13 in case of SAOL, and matter was restored back to the file of CIT(A). On the very same reasoning, we restore 38
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this ground to the file of CIT(A) to decide afresh as directed hereinabove.
59. In the result, the appeal of the Revenue is allowed for statistical purposes.
This order has been pronounced in the open court on 30th May, 2011.
Sd/- Sd/-
(JOGINDER SINGH) ( R.C.SHARMA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 30th May, 2011.
CPU*
2.5
39