Income Tax Appellate Tribunal - Jaipur
Lord Chloro Alkali Ltd., Jaipur vs Assessee on 19 August, 2016
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI VIKRAM SINGH YADAV, AM & SHRI LALIET KUMAR, JM
vk;dj vihy la-@ITA No. 382/JP/2011
fu/kZkj.k o"kZ@Assessment Years : 1996-97
M/s Lord Chloro Alkali Limited, cuke ACIT,
Formerly known as Modi Alkalies Vs. Circle-1,
Limited, SP-460, MIA, Alwar.
Alwar.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABCM 3981 C
vihykFkhZ@Appellant izR;FkhZ@Respondent
vk;dj vihy la-@ITA No. 420/JP/2011
fu/kZkj.k o"kZ@Assessment Years : 1996-97
ACIT, cuke M/s Lord Chloro Alkali Limited,
Circle-1, Vs. Formerly known as Modi Alkalies
Alwar. Limited, SP-460, MIA,
Alwar.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABCM 3981 C
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj l@
s Assessee by : Shri P.C. Parwal (CA)
jktLo dh vksj ls@ Revenue by : Shri D.S. Kothari (CIT)
lquokbZ dh rkjh[k@ Date of Hearing : 05/08/2016
mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 19/08/2016
2 ITA 382 & 420/JP/2011_
M/s Lord Chloro Alkalies Ltd. Vs ACIT
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 04/03/2011 passed by the ld CIT(A), Alwar for the A.Y. 1996-97. The effective grounds of both the appeals are as under:-
Grounds in revenue's appeal:-
1. That the ld. CIT(A) has erred in law as well as on the facts and circumstances of the case in deleting the addition/disallowance Rs. 40,76,485/- made out of stores and spare expenses.
2. That the ld. CIT(A) has erred in law as well as on the facts and circumstances of the case in deleting the disallowance of Rs. 4,40,000/- made out of legal and professional charges provisions booked for bills not received, treating the same expended for getting a benefit of enduring nature.
3. That the Id. CIT(A) has erred in law as well as on the facts and circumstances of the case in deleting the addition of Rs. 90,400/- made in respect of collection of Benevolent fund u/s 2(24)(x) of the I.T. Act not deposited in bank.
4. That the Id. CIT(A) has erred in law as well as on the facts and circumstances of the case in restricting the entertainment expenditure of Rs. 37,500/- out of total disallowance of Rs. 1,47,341/- made by the A.O.
5. That the Id. CIT(A) has erred in law as well as on the facts and circumstances of the case in deleting the 3 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT addition/disallowance of Rs. 3,41,550/- made in respect of guest house expenses.
6. That the Id. CIT(A) has erred in law as well as on the facts and circumstances of the case in deleting the addition of Rs. 2,35,000/- made on account of payment of club.
7. That the Id.CIT(A) has erred in law as well as on the facts and circumstances of the case in restricting the vehicle expenses to Rs. 1,20,000/- out of total disallowance of Rs.
2,00,000/-.
8. That the Id. CIT(A) has erred in law as well as on the facts and circumstances of the case in directing to allow the payment of excise duty of Rs. 50,00,000/- and 10,00,000/- paid on 31.08.1996 & 20.09.1996 respectively as per provisions of section 43B, out of addition made of 5,33,24,729/- on account of on premium money collected in cash on sale of chlorine.
9. That the Id. C1T(A) has erred in law as well as on the facts and circumstances of the case in directing to allow the claim of assessee after verifying the amount from the record in respect of addition made of difference of Rs. 1,01,901/- in modvat value available in valuation of closing stock of raw material.
10. That the Id. CIT(A) has erred in law as well as on the facts and circumstances of the case in restricting the expenses made on account of repair of vehicle to Rs. 3,02,000/- out of total disallowance of Rs. 6,02,000/-.
11. That the Id. CIT(A) has erred in law as well as on the facts and circumstances of the case in deleting the addition of Rs. 10,00,000/- made out of manufacturing expenses on account of valuation of closing stock."
4 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT Grounds of assessee's appeal:
"1. The Ld. Commissioner of Income tax (Appeals) has erred in fact and in law in confirming the disallowance of Rs.3,01,832/- out of power and fuel expenses.
2. The Ld. Commissioner of Income tax (Appeals) has erred in fact and in law in confirming disallowance of Rs.37,500/- u/s 37(2A) by upholding the action of the AO in assuming that an amount of Rs.75,000/- out of expenditure on employees welfare and canteen expenses are of entertainment in nature.
3. The Ld. Commissioner of Income tax (Appeals) has erred in fact and in law in confirming the disallowance of Rs. 19,00,000/- on adhoc basis out of repairs and maintenance expenses by considering the same as incurred on repairs of the guest house building.
4. The Ld. Commissioner of Income tax (Appeals) has erred in fact and in law in confirming disallowance of Rs.12,38,418/- out of foreign travelling expenses.
5. The Ld. Commissioner of Income tax (Appeals) has erred in fact and in law in confirming disallowance of Rs. 1,04,108/- out of legal expenses.
6. The Ld. Commissioner of Income tax (Appeals) has erred in fact and in law in confirming disallowance of Rs.2,00,000/- out of the publicity expenses.
7. The Ld. Commissioner of Income tax (Appeals) has erred in fact and in law in confirming disallowance of Rs. 1,20,000/- out of the vehicle expenses.
8. The Ld. Commissioner of Income tax (Appeals) has erred in fact and in law in confirming disallowance of Rs.21,96,755/- out of the interest payment.
5 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT
9. The Ld. Commissioner of Income tax (Appeals) has erred in fact and in law in confirming disallowance of Rs.3,45,600/- out of interest expenses.
10. The Ld. Commissioner of Income tax (Appeals) has erred in fact and in law in confirming addition of Rs.82,67,790/- u/s 40A(3). He has further erred in not considering the applicability of Rule 6DD(j) as was existing till 25-07-1995.
11. The Ld. Commissioner of Income tax (Appeals) has erred in fact and in law in confirming disallowance of Rs. 1,50,000/- out of telephone expenses.
12. The Ld. Commissioner of Income tax (Appeals) has erred in fact and in law in not allowing the claim of prior period expenses of Rs.9,60,175/-.
13. The Ld. Commissioner of Income tax (Appeals) has erred in fact and in law in confirming the addition of Rs.5,33,24,729/- on account of premium receipt on sale of liquid chlorine.
14. The Ld. Commissioner of Income tax (Appeals) has erred in fact and in law in confirming disallowance of Rs.3,02,000/- out of expenses on repairs of motor car.
15. The Ld. Commissioner of Income tax (Appeals) has erred in fact and in law in confirming addition of Rs.4,73,264/- on account of loss in transit.
2. The brief facts of the case are that the assessee company is engaged in the manufacture of liquid chlorine & caustic soda flakes. It filed the return declaring loss of Rs.11,08,211/- on 26.11.96. Assessment was completed on 30.03.1999 at an income of 6 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT Rs.7,69,63,210/-. Against the assessment order, the assessee preferred an appeal before the CIT(A), Alwar. The CIT(A) passed an ex-parte order on 25.01.2000 by confirming majority of the additions made by the AO. After the order of CIT(A), income was determined at Rs.7,06,32,968/-. Against the order of CIT(A), both the assessee & the department preferred an appeal before the Hon'ble ITAT. The Hon'ble ITAT vide order dated 19.09.2008, restored the matter to the file of the CIT(A) to decide the issues denovo by providing adequate opportunity of hearing to both the parties. In pursuance of the direction of Hon'ble ITAT, notice of hearing was given to the assessee as well as the AO. The various grounds which were set aside were decided & disposed off by the Ld. CIT(A) vide order dated 04.03.2011. Against the order of CIT(A), both the assessee & the department preferred the present appeal before the Hon'ble ITAT.
3. Firstly, we will take up departmental appeal along with common grounds in both the appeals. The first ground of the revenue is against deleting the addition/disallowance of Rs. 40,76,485/- made out of stores & spares expenses. The assessee claimed expenditure of Rs. 52,99,623/- being the cost of turbo charger which is a spare part of DG Set. It was explained that DG Set is covered under the break down 7 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT policy of insurance. In A.Y. 98-99, insurance claim of Rs. 32,76,485/- was received & the scrap value of old turbo charger was booked as miscellaneous income & therefore the expenditure claimed on turbo charger is allowable as revenue expenditure. The AO observed that expenditure incurred is on current repair but the same should be allowed to the extent of procurement of new spare part minus insurance receivable minus amount receivable on sale of old part. Accordingly, after estimating the sale of old spare parts at Rs. 8 lacs, he allowed the claim of expenditure at Rs. 12,23,138/- (Rs.52,99,623 - Rs.32,76,485 - Rs.8,00,000) & disallowed the balance amount of Rs. 40,76,485/-.
4. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld CIT(A), who had deleted the disallowance of Rs.40,76,485/- by giving the following findings:-
"I have perused the assessment order as well as submission of the assessee. The assessee has shown insurance claim of Rs.32,76,485/- and realization from the sale of scrap of damaged turbo charger on receipt basis in F.Y. 97-98 relevant to A.Y. 98-99. Therefore, this addition is not justified. Accordingly, the addition made at Rs.40,76,485/- is deleted."
8 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT
5. Now the revenue is in appeal before us. The ld CIT DR has vehemently supported the order of the lower authorities.
6. At the outset, the ld AR of the assessee has submitted that there is no dispute as to the fact that the expenditure on spare part of the DG set is allowable as revenue expenditure. During the year, the assessee incurred expenditure on such spare part at Rs. 52,99,623/-. Hence, the entire expenditure is allowable during the year. The amount of insurance claim & the sale of the old spare part has materialized & received in the subsequent year on 18.09.97 & accordingly considered in A.Y. 98-99. The assessee is following a consistent accounting policy whereby insurance claim & recovery of cost towards accessories are accounted for on cash basis due to uncertainty of realization. This is specifically mentioned in Schedule 'P' Para A(1) of the significant accounting policies & notes to accounts. In these circumstances, the deduction of insurance claim and the sale realization from damaged turbo charges from the cost of new turbo charges is not justified. The findings of CIT(A) be therefore upheld by dismissing the ground of the department.
9 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT
7. We have heard the rival contentions of both the parties and perused the material available on the record. The assessee is following consistent accounting policy whereby insurance claim and recovery of cost towards accessories are accounted for on cash basis due to uncertainty of realization. The amount of insurance claimed received as per breakdown insurance policy taken for the D.G. set amounting to Rs. 32,76,485/- and realization from sale of scrap of damaged turbo charger amounting to Rs. 8 lacs has been received and offered to tax in the subsequent assessment year 1998-99. Hence we do not see that there is any loss which has been caused to the Revenue by not offering the said receipts in the year under consideration. It is not the case of the Revenue that any tax rates have changed in the subsequent year. In light of above, we do not see any justification in interfering with the order of ld. CIT(A). Hence we confirm the findings of the ld. CIT(A) and dismissed the ground of the Revenue.
8. The 2nd ground of the revenue's appeal is against deleting the disallowance of Rs. 4,40,000/- made out of legal & professional charges treating the same as expenditure for getting a benefit of enduring nature. The ld Assessing Officer observed that the assessee claimed expenditure of Rs.4,40,000/- under the head legal & professional 10 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT charges. The amount was paid to M/s Jaishree Techno Craft, Jaipur towards the environmental study undertaken for converting the existing mercury plant into a better technological membrane cell plant. The AO observed that the expenditure incurred was to get a benefit of enduring nature, the copy of report obtained was not filed, invoice issued by the party is dated 26.07.1995 whereas the order is dated 25.12.1995. He accordingly, disallowed the expenditure of Rs.4,40,000/-.
9. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld CIT(A), who had deleted the disallowance by holding that the expenditure was incurred on the environmental impact study for mercury MCP plant wholly and exclusively for the business purposes as it was a continuous process of the company to follow the environmental policy. Accordingly, the assessee company took the technical advice and incurred the expenditure as revenue and it is not for enduring benefit.
10. Now the revenue is in appeal before us. The ld CIT DR has vehemently supported the order of the lower authorities.
11. At the outset, the ld AR of the assessee has submitted that the assessee is engaged in the business of manufacturing of liquid chlorine 11 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT & caustic soda flakes. It is already producing & manufacturing the goods. Any study undertaken for converting the existing plant into a better technological plant in an existing business is a revenue expenditure & not a capital expenditure. It may be noted that though the payment is made to the consultant towards the environmental study for conversion of existing plant, such consultancy, does not add to the value of the asset or gives any enduring benefit to the assessee. The payment of consultancy charges is an integral part of profit earning process and not for acquisition of an asset or a right of permanent character. Apart from the cases relied before the CIT(A), reliance is further placed on the following cases:- He relied on the following case laws:-
(i) Effluent Channel Project Ltd. Vs. ACIT (2010) 29 CCH 917 (Ahd.) (Trib.)
(ii) CIT Vs. Majestic Auto Ltd. (2009) 310 ITR 90 (P&H) (HC)
(iii) ACIT Vs. J.P. Morgan India (P.) Ltd. (2011) 46 SOT 250 (Mum.) (Trib.) He further submitted that so far as the AO's observation that order is dated 25.12.1995 but invoice issued by the party is dated 26.07.1995, the same appears to be some typographical mistake. This was neither pointed out to the assessee in the course of assessment proceedings
12 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT nor any enquiry was made from the concerned party about such discrepancy. Hence, for this reason the expenditure without proving that the same is not genuine cannot be disallowed. In view of above, CIT(A) has rightly deleted the disallowance of Rs.4,40,000/- and the ground of the department be dismissed.
12. We have heard the rival contentions of both the parties and perused the material available on the record. An amount of Rs.4,40,000/- has been incurred by the assessee towards the environmental study which was undertaken for converting its existing mercury plant into a technological better membrane cell plant. There is nothing on record to confirm that the assessee has actually converted the existing plant into the new plant and whereby the said cost should go and be added to the cost of the new plant. The expenditure therefore is clearly in connection with conducting a study to make the plant technological better plant. In our view, the said expenditure towards carrying out only the consultancy study cannot be characterized as a capital expenditure. Further the decision of Punjab & Haryana High court in case of Majestic Auto Ltd. and other Co- ordinate Bench decisions quoted by the ld. AR support the said position. In light of above, we do not see any necessity to interfere to the 13 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT findings of the ld. CIT(A). Hence ground No.2 of the Revenue is dismissed.
13. The 3rd ground of the revenue's appeal is against deleting the addition of Rs. 90,400/- made in respect of collection of benevolent fund u/s 2(24)(x) of the I.T. Act not deposited in the bank. The ld Assessing Officer observed that a benevolent fund was constituted for the welfare of employees & contribution was being made by the employees & the assessee. The assessee created a liability of Rs. 90,400/- towards its contribution to this fund. The AO disallowed the assessee's claim for the reason that the sum is not deposited in the bank and it will be allowed in the year in which the same is deposited in the bank.
14. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld CIT(A), who had deleted the addition of Rs.90,400/- by holding that the assessee company has paid the sum on 31.08.1996 i.e. before the due date of filing the return and the evidence for payment has been produced by the assessee.
15. Now the revenue is in appeal before us. The ld CIT DR has vehemently supported the order of the ld lower authorities.
14 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT
16. At the outset, the ld AR of the assessee has submitted that as per AS-29, "A liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an out flow from the enterprise of resources. In mercantile system of accounting, once there is an obligation on the assessee for contribution to the benevolent fund, there is no law under the Income Tax Act that the same would be allowed only when it is paid/ deposited in the bank in the name of the fund except where section 43B applies. The AO has not disputed the liability. Hence, the same cannot be disallowed only because it is not deposited in the bank in the name of the fund. Otherwise also, this amount was paid before 31.08.96. In view of above, CIT(A) has rightly deleted the addition and the ground of the department be dismissed.
17. We have heard the rival contentions of both the parties and perused the material available on the record. The liability of the assessee towards its share of contribution to the benevolent fund for the welfare of the employees has not been disputed. Further the ld. CIT(A) has confirmed that the said contribution has been deposited before due date of filing the return of income, hence in light of the provisions of section 43B of the Act the said contribution has been 15 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT rightly allowed by the CIT(A). Hence we confirm the order of the ld. CIT(A) and we dismiss this ground of Revenue's appeal.
18. The 4th ground of the revenue and 2nd ground of the assessee's appeal are against restricting the disallowance on account of entertainment expenses to Rs.37,500/- out of total disallowance of Rs.1,47,341/- made by the Assessing Officer and confirming disallowance of Rs.37,500/- u/s 37(2A) by upholding the action of the AO in assuming that an amount of Rs.75,000/- out of expenditure on employees welfare and canteen expenses are of entertainment in nature. The AO observed that expenses under the head 'employees welfare and canteen expenses' includes expenses on tea, coffee, cold drinks etc. for visitors. Accordingly, he estimated Rs.75,000/- in the nature of entertainment expenditure. He further observed that expenditure of Rs.2,19,682/- under the head 'repair & maintenance expenses' on boarding & lodging of engineers is also in the nature of entertainment. Accordingly, he made disallowance of Rs. 1,47,341/- being 50% of Rs.75,000 and Rs. 2,19,682/- u/s 37(2A) of the Act.
19. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld CIT(A), who had deleted the 16 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT disallowance of Rs.1,09,841/- by holding that the expenditure incurred on technical persons called for attending the repairs of faults in the appellants plant cannot be considered as entertainment expenditure. However, he confirmed the disallowance of Rs.37,500/- by upholding the action of the AO in assuming that an amount of Rs.75,000/- out of expenditure on employees welfare and canteen expenses are of entertainment in nature.
20. Now the revenue is in appeal before us. The ld CIT DR has vehemently supported the order of the lower authorities.
21. At the outset, the ld AR of the assessee has submitted that the term "entertainment", in the context of the IT Act, on its true construction and meaning, would include the acts or practice of receiving and entertaining strangers and friends in a friendly, generous and liberal way. These acts may consist of providing, inter alia, a formal or elegant meal, a banquet and being hospitable in providing for the wants of a guest in a liberal and generous manner. If the act of entertaining is on a lavish and a grand scale involving wasteful expenditure, it would, no doubt, amount to entertainment. On the other hand, if the acts or practice of being hospitable in the sense of 17 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT providing meals, drinks or other wants of persons entertained, whether they may be employees, workmen or officers, servants or agents in the service of an assessee, as an express or implied condition of service, they would not amount to acts of entertainment. Similarly, if the acts or practice of being hospitable in the sense of providing meals, drinks or satisfying any other wants of guests, whether they are friends, strangers or customers, as a part and parcel of express or implied terms and conditions of business, trade or profession, or on account of longstanding custom in such trade, business or profession, they would not amount to acts of entertainment. Hospitality shown on account of obligation of business arising as a result of an express or implied contract or arising on account of the long standing custom of a trade, business or profession, cannot amount to entertainment, and acts done in discharge of such obligation cannot be included and covered in the term "entertainment" without violence to language. In the present case, the expenditure incurred on boarding & lodging of technical persons called for attending the repairs or fault in the assessee's plant cannot be considered as entertainment expenditure. The Ld. CIT(A) has therefore rightly deleted the disallowance of Rs. 1,09,841/- and the ground of the department be dismissed. He further submitted that so far as 18 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT disallowance of Rs.37,500/- made by the AO and confirmed by the CIT(A) by assuming that an amount of Rs.75,000/- out of expenditure on employees welfare and canteen expenses are of entertainment in nature is concerned, it is to be noted that part of the canteen expenses which is meant for the employees where occasionally the visitors also take meals/coffee cannot be said to be entertainment in nature. Reliance in this connection is placed on following cases:-
(i) CIT Vs. Premier Vegetable Products Ltd. (2014) 97 DTR 230 (Raj.) (HC)
(ii) Associated Stone Industries (Kotah) Ltd. Vs. CIT (2002) 123 Taxman 643 (Raj.) (HC)
(iii) Rajasthan Cotton Mills Vs. CIT (1987) 32 Taxman 365 (Raj.) (HC) In view of above, the disallowance Rs.37,500/- confirmed by the CIT(A) be deleted.
22. We have heard the rival contentions of both the parties and perused the material available on the record. The amount of Rs. 2,19,682/- has been incurred on boarding and lodging of Engineers who have been called upon to carry out repair of faults in the appellant's plant. Further Rs. 75,000/- has been estimated by the AO towards entertainment expenditure which has been incurred on 19 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT expenses of tea, coffee, cold drinks etc. for the visitors who have visited the office and factory premises of the assessee. In our view these are routine business expenditure which has been incurred to provide basic hospitality to the technicians and guests who have visited the office and factory premises. Further the decisions of the Hon'ble Rajasthan High Court in case of Premier Vegetable Products, Associated Stone Industries and Rajasthan Cotton Mills (supra) support the case of the assessee. In light of above, we delete the disallowance of entertainment expenditure of Rs. 1,47,341/- made by the AO. In the result this ground of the revenue is dismissed and the ground of the assessee is allowed.
23. The 5th ground of the revenue's appeal is against deleting the addition/disallowance of Rs. 3,41,550/- made in respect of guest house expenses. The AO from the perusal of details of miscellaneous expenses filed by the assessee observed that a sum of Rs.10,61,482/- has been shown as guest house expenses for Delhi office. However, as per the tax audit report, only Rs.7,19,965/- has been considered for disallowance. In the absence of explanation, the AO made further disallowance of Rs. 3,41,550/-.
20 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT The ld CIT(A) deleted the disallowance of Rs.3,41,550/- by holding that the assessee has filed the copy of audit report before me which shows fooding and miscellaneous charges at Rs.8,55,975/- which has already been considered by the auditor for disallowance of expense under this head. Therefore, again the disallowance is not justified.
The ld CIT DR has relied on the order of the ld lower authorities. At the outset, the ld AR of the assessee has submitted that it may be noted that once the auditor after verification has found the guest house expenses out of miscellaneous expenses at Rs. 7,19,965/-, the same cannot be taken at Rs. 10,61,480/- on the basis of the broad details filed by the assessee. The CIT(A) has therefore rightly deleted the disallowance and the ground of the department be dismissed.
24. We have heard the rival contentions of both the parties and perused the material available on the record. The ld. CIT(A) has given a finding of fact that as per tax audit report submitted before him, an amount of Rs. 8,55,975/- which includes Rs.7,19,965/- towards the guest house expenses for Delhi office has already been considered by the auditor for disallowance of the guesthouse expenses. The said findings of the ld. CIT(A) remain uncontroverted. In light of that, we 21 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT donot see any justification for estimation of expenses as done by the AO. We accordingly confirm the order of the ld. CIT(A) and the ground of the revenue is dismissed.
25. The 6th ground of the revenue's appeal is against deleting the addition of Rs. 2,35,000/- made on account of payment to clubs. The AO observed that the assessee has made payments for the club membership of its Chairman, MD & Senior Executives. Accordingly, by holding that the club payments are not exclusively for the purpose of business, he made disallowance of Rs.2,35,000/-.
The Ld. CIT(A) deleted the disallowance by holding that the expenditure incurred on club is for the purpose of business as held by various courts.
The ld CIT DR has relied on the order of the ld lower authorities. At the outset, the ld AR of the assessee has submitted that it may be noted that the payment made to club towards corporate membership is allowable as business expenditure. Apart from the cases relied before the CIT(A), reliance is further placed on the following cases:-
(i) CIT Vs. Groz Beckert Asia Ltd. (2013) 351 ITR 196 (P&H)(HC)(FB) 22 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT
(ii) CIT vs. Infosys Technologies Ltd. (2012) 349 ITR 606 (Kar.)(HC)
(iii) CIT vs. Modi Xerox Ltd. (2012) 344 ITR 411 (All.) (HC)
(iv) CIT Vs. Samtel Colour Ltd. (2010) 326 ITR 425 (Del.) (HC) In view of above, CIT(A) has rightly deleted the disallowance and the ground of the department be dismissed.
26. We have heard the rival contentions of both the parties and perused the material available on the record. The Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Groz Beckert Asia Ltd (supra) has held that corporate membership does not bring in the existence an asset or an advantage for enduring benefit to the business. The corporate membership was obtained for running the business. In light of the said decision and other decisions of the Hon'ble High Court quoted (supra) by the ld. AR, we confirm the order of the ld. CIT(A) who has rightly held that the expenditure incurred on payments to clubs is in the nature of business expenditure.
27. The 7th ground of the revenue's appeal and 7th ground of the assessee's appeal are against restricting the vehicle expenses to Rs.1,20,000/- out of total disallowance of Rs.2,00,000/- and confirming disallowance of Rs.1,20,000/- out of the vehicle expenses. The ld AO 23 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT observed that assessee has claimed expenses on vehicle which are not owned by it. The vehicles are used for personal purpose by the directors. Accordingly, he made lump sum disallowance of Rs. 2 lacs.
The Ld. CIT(A) observed that day to day details of expenses are not maintained and therefore non business use of the expenses cannot be ruled out, registration no. of vehicles are not filed, provision of Rs.1,20,000/- is made which is adjusted in subsequent year and therefore this liability has not been crystallized, perquisite value is included in some cases only and therefore he confirmed disallowance of Rs.1,20,000/-.
The ld CIT DR has relied on the order of the lower authorities. At the outset, the ld AR of the assessee has submitted that for allowance of vehicle expenses it is not necessary that vehicle should be owned by the assessee. Even if vehicles are owned by the employee's expenditure on their vehicle is allowable u/s 37(1) when incurred for the purpose of the business. In case of a Public Ltd. Company no disallowance for personal use of directors can be made as held in the following cases:-
(i) Surya Credits Ltd. vs DCIT 22 Tax World 90 (Jaipur Bench):
(ii) Dy. CIT vs Gujarat Filaments Ltd. 108 Taxman 287 (Ahd.) (Mag.):
24 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT
(iii) Banco Products (India) Ltd. vs Dy. CIT 63 ITD 370(Ahd.):
(iv) ITO vs Ashoka Betelnut Co. (P.) Ltd. 21 TTJ (Mad.) 465.
He further submitted that the CIT(A) has confirmed the disallowance of Rs.1,20,000/- as liability for this amount was provided at the year end. It may be noted that this is a crystallized liability which is paid in the next year as accepted by the CIT(A). No specific expenditure incurred for non business purpose has been pointed out. Therefore, the disallowance confirmed by CIT(A) be deleted. Without prejudice, it may be pointed out that the CIT(A) in the first round has only confirmed the disallowance of Rs.1,00,000/-. Therefore, disallowance of Rs.1,20,000/- confirmed by CIT(A) is otherwise not justified. In view of above, the disallowance confirmed by CIT(A) be deleted by dismissing the ground of the department.
28. We have heard the rival contentions of both the parties and perused the material available on the record. The vehicle expenses have been disallowed on two accounts. Firstly on a/c of non-business use of the expenses and secondly, on a/c of provisions of Rs. 1,20,000. It is a settled position in law that in case of corporate entities, no disallowance can be made for personal use as corporate entities are distinct from directors and any payments/expenditure incurred for 25 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT Directors are governed by their terms of appointment. In the instant case, therefore no disallowance can be made holding that expenditure has been incurred for the personal purposes. Secondly, the liability for Rs. 1,20,000/- has crystallized during the year and following the mercantile system of accounting, the same cannot be disallowed. In the result, we delete the disallowance Rs. 1,20,000/- towards vehicle disallowance made by the AO. In the result, the ground of the revenue is dismissed and the ground of the assessee is allowed.
29. The 8th ground of the revenue's appeal and ground No. 13 of the assessee's appeal are against directing to allow the payment of excise duty of Rs.50,00,000/- and 10,00,000/- paid on 31.08.1996 & 20.09.1996 respectively as per provisions of section 43B,out of addition made of Rs.5,33,24,729/- on account of premium money collected in cash on sale of chlorine and confirming the addition of Rs.5,33,24,729/- on account of premium receipt on sale of liquid chlorine. The ld AO on the basis of search conducted by Central Excise Department on 27.8.1996 and the consequent order passed by Commissioner of Central Excise dated 8.12.1998 held that assessee collected cash from Customers of liquid chloride over and above the invoice value for which a demand of duty amounting to Rs. 1,45,61,754/- has been raised by 26 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT the Excise department for the period April 1995 to August 1996. The difference of duty for the period April 1995 to March 1996 was worked out at Rs. 1,06,64,946/-. The excise duty being 20% of the value of goods, he held that assessee received premium of Rs. 5,33,24,729/- (1,06,64,946 * 5) for which addition was made. In assessment proceedings, assessee contended that amount of the premium alleged to be charged by the assessee is still not finalized under the Excise Act and therefore till the same is finally decided, no addition on the basis of the orders of Excise Authority should be made in the hands of the assessee. Further assessee has paid duty of Rs. 50 Lacs on 31st August 1996 and Rs. 10 Lacs on 20.9.1996 i.e. before due date of filing of return. Hence the amount of Rs. 60 Lacs needs to be allowed u/s 43B.
30. The Ld. CIT(A) directed the AO to verify from the Excise Department exact position of appeal and collect the appeal order. It further directed the AO to verify the claim of payment of Rs.60 lacs on account of excise duty before the due date of return.
31. Now both are in appeal before us. The ld CIT DR has supported the order of the lower authorities and the ld AR of the assessee has submitted that matter regarding alleged premium charged from 27 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT customers on sale of liquid chloride and its quantification is still pending before CESTAT. Hence, the addition made by AO be set aside to him to decide the same as per law after the finalization of appeal by CESTAT. CIT(A) has also given the similar direction but still the AO has not given effect to the same. Hence, the AO be specifically be directed to exclude this addition while giving the effect to the Appellate order and to consider the addition as per law as an when the appeal under the Excise law is finally decided. As far as allowability of excise duty of Rs.60 lacs deposited by assessee before due date of filing of return u/s 43B is concerned, there is no error in the direction given by CIT(A) and therefore his order be upheld on this issue. In view of above, the addition confirmed by CIT(A) be deleted.
32. 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 28 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT 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.
33. The 9th ground of the revenue's appeal is against directing to allow the claim of the assessee after verifying the amount from the record in respect of addition made of difference of Rs. 1,01,901/- in MODVAT value available in valuation of closing stock of raw material. The ld AO observed that assessee has not included the excise duty of Rs.3,64,438/- in the valuation of closing stock of raw material. As against this MODVAT available as per books is Rs. 2,98,099/-. As the excise duty on other raw material was not available he estimated the amount of excise duty on raw material at Rs. 4 lacs and after considering the MODVAT available at Rs. 2,98,099/- made an addition of Rs. 1,01,901/-.
The ld CIT(A) directed the AO to verify the contention of assessee that excise duty is paid before due date of filing of return and that his predecessor CIT(A) has only confirmed the addition of Rs.66,246/-
29 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT (364438-298099) on this account and accordingly allow the claim of assessee.
The CIT DR has supported the order of the lower authorities. The ld AR of the assessee has submitted that Section 145A which requires that tax is to be considered in valuation of stock has come into force from AY 1997-98. Hence for the year under consideration no addition can be made in respect of excise duty in the value of closing stock. Otherwise also when such excise duty has been subsequently paid before due date of filing of return, the same is allowable u/s 43B. This is also accepted by AO in order u/s 143(3)/148 dt. 28.11.03 (copy enclosed). In these circumstances no addition is called for and therefore the entire addition needs to be deleted. Without prejudice to above there is no basis to estimate the amount of excise duty on raw material at Rs.4 lacs as against actual amount of Rs.3,64,438/-. The difference between excise duty and MODVAT credit is only Rs. 66,249/- which was confirmed by the predecessor CIT(A) against which no appeal is filed by the department to the tribunal. Thus, the addition made by the AO is otherwise incorrect. In view of above the entire addition made by AO needs to be deleted by dismissing the ground of the department.
30 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT
34. We have heard the rival contentions of both the parties and perused the material available on the record. The appellant has submitted that as against Excise Duty of Rs. 3,64,438/- in respect of closing stock of raw material, the appellant had a MODVAT credit available in its books of accounts amounting to Rs. 2,98,099/- and further the balance amount of the Excise duty has been paid before the due date of filing of the return. The AO is accordingly directed to verify the said claim of the assessee and where the same is found to be in order, allow necessary relief to the assessee. Hence this ground of the revenue is dismissed.
35. Ground No. 10 of the revenue's appeal and ground No. 14 of the assessee's appeal are against restricting the expenses made on account of repair of vehicle to Rs.3,02,000/- out of total disallowance of Rs.6,02,000/- and confirming disallowance of Rs.3,02,000/- out of expenses on repairs of motor car. The ld Assessing Officer observed that during the year assessee has debited Rs.79.19 lakhs on account of repair & maintenance (others) and Rs.23.73 lakhs on account of repairs on vehicles. The AO observed that out of total expenses of Rs. 79.19 lacs, details of Rs.3.02 lacs is not filed, hence, he disallowed the same. He further made lump sum disallowance of Rs.3 lacs on vehicle holding 31 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT that the vehicles were also used for the personal purpose of the director. Accordingly total disallowance of Rs.6,02,000/- was made.
The Ld. CIT(A) deleted the disallowance of Rs.3 lacs holding that personal purposes addition cannot be made in the hands of the company but can be considered as perquisites in the hands of the directors. However, he confirmed the disallowance of Rs.3.02 lacs due to non furnishing of the details.
The CIT DR has supported the order of the lower authorities. The ld AR of the assessee has submitted that no lump sum disallowance of Rs.3 lacs out of vehicle repair expenses on account of benefit to the directors can be made in case of a limited company. The Ld. CIT(A) has therefore rightly deleted the disallowance of Rs.3,00,000/- and the ground of the department be dismissed. So far as disallowance of Rs.3,02,000/- made by AO and confirmed by the CIT(A) on account of non availability of details is concerned, considering the volume of business and in the absence of any specific requirement from the AO, the same could not be furnished. However, the fact is that such expenditure is incurred in normal course of business. Hence, the 32 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT disallowance of Rs.3.02 lacs confirmed by CIT(A) is uncalled for and directed to be deleted.
36. We have heard the rival contentions of both the parties and perused the material available on the record. As we have held earlier while disposing off ground No.7 in respect of vehicle running expenses, applying the same analogy, the disallowance of Rs. 3,00,000/- out of vehicle repair expenses is hereby deleted. Further the AO observed that out of total expenses of Rs. 79.19 lacs details of Rs. 3,02,000/- was not filed which he disallowed on a/c of non-availability of details. No specific reason or explanation has been provided by the assessee as to why it could not supply the details of Rs. 3,02,000/- of the vehicle running expenses. At the same time it is noted that the AO has not challenged the veracity of the claim or the incurrence of the expenditure for the purpose of the business. In light of that we hereby delete the disallowance of Rs. 3,02,000/-. In the result the revenue's appeal is dismissed and the assessee's appeal is allowed.
37. The ground No. 11 of the revenue's appeal is against deleting the addition of Rs. 10 lacs on account of valuation of closing stock. The AO 33 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT observed that closing stock has not been valued properly. He therefore made a lump sum addition of Rs. 10 lacs after revoking section 145(2).
The Ld. CIT(A) deleted the disallowance by holding that the assessee is regularly following the method of closing stock and there is no deviation in valuation method during the year, thus, rejection of books of accounts u/s 145(2) is not justified.
The CIT DR has supported the order of the lower authorities. The ld AR of the assessee has submitted that in absence of any specific defect in the books of account or for that matter in the valuation of closing stock the lump sum addition of Rs.10 lacs is uncalled for. The Hon'ble ITAT Allahabad Bench in case of DCIT Vs. Subhash Chand Agarwal 58 SOT 122 has held that when Assessing Officer failed to point out any defect in method of accounting or any inherent defect in books of account maintained by assessee, invoking section 145 for rejecting books of account is unsustainable. Without prejudice to above, it is to submit that that closing stock of one year becomes the opening stock of the next year. The AO simply increased the value of the closing stock of this year by Rs.10 lakhs without directing to correspondingly increase the value of the opening stock of next year.
34 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT Hence in case the valuation of stock as done by AO is approved, he has to adopt the same as opening stock in next year. In next year i.e. AY 1997-98, the closing stock as valued by the assessee as per his consistent method has been accepted. Therefore, in the AY 1997-98, the income would be reduced by the similar amount. The Supreme Court in case of CIT Vs. Excel Industries Ltd. 358 ITR 295 has held that where in several A.Y.'s, the Revenue accepted the order of the Tribunal in favour of the assessee and did not pursue the matter any further but in respect of some A.Y.'s, the matter was taken in appeal before the High Court but without any success, the Revenue cannot be allowed to flip-flop on the issue and it ought let the matter rest rather than spend the taxpayers' money in pursuing litigation for the sake of it. It further held that when the rate of tax remained the same in present A.Y. as well as in subsequent A.Y. the dispute raised by the Revenue is entirely academic or at best may have a minor tax effect. There was, therefore, no need for the Revenue to continue with the litigation when it was quite clear that not only was it fruitless (on merits) but also that it may not have added anything much to the public coffers. It may be noted that the Punjab & Haryana High Court in case of CIT Vs. Satish Estate Pvt. Ltd. (2014) 226 Taxman 11 where addition of Rs.75 lakhs was 35 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT made on account of undervaluation of closing stock of the land but the closing stock of land shown by the assessee is accepted by AO as opening stock for the subsequent year in the assessment made u/s 143(3) for the subsequent year deleted the addition made by the AO as no loss to the revenue has been caused. In the present case also for subsequent AY 1997-98 AO has accepted the closing stock declared by the assessee as opening stock and also accepted the closing stock declared in that year. Therefore, also the addition made by him is legally not tenable. Hence, the order of the CIT(A) be upheld by dismissing the ground of the department.
38. We have heard the rival contentions of both the parties and perused the material available on the record. The ld. CIT(A) has given a finding of fact that the assessee is regularly following the consistent basis for the valuation of its closing stock and there is no deviation in the valuation method during the year. Further the ld. AR has submitted that for subsequent A.Y 1997-98 the AO has accepted the closing stock declared by the assessee for the year under consideration as opening stock for that year and also accepted the closing stock declared in that year. Further it is noted that there is no change in the rate of tax for the year under consideration and the subsequent assessment year, 36 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT hence following the decision of Hon'ble Supreme Court in the case of Excel Industries Ltd. (supra) and decision of Hon'ble Punjab & Haryana High Court Satish Estate Pvt. Ltd (supra), we hereby delete the addition of Rs. 10 lacs on account of valuation of closing stock.
39. Now we will take up the grounds in the assessee's appeal other than the common grounds. The 1st ground of the assessee's appeal is against confirming the disallowance of Rs. 3,01,833/- out of Power & Fuel Expenses. The ld AO observed that assessee paid the amount of Rs.3,01,833/- to RSEB towards penalty. No justification was given by the assessee for its allowability. He therefore disallowed the same holding that the expenditure is in the nature of penalty. Before CIT(A), assessee explained that the amount paid to RSEB is not an expenditure incurred for any purpose which is an offence or which is prohibited by law. The amount so paid to RSEB is only a compensatory payment which the assessee has to pay as per contractual obligation since it was towards drawing the power more than the sanctioned capacity. It is not towards infringement of any law.
The Ld. CIT(A) confirmed the disallowance by holding that the assessee has not produced any evidence which shows that these 37 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT payments were towards drawing the power more than sanctioned capacity whereas the AO had specifically mentioned in the assessment order that the assessee has debited penalty in the P&L A/c.
The ld AR of the assessee has submitted that the amount paid to RSEB is a payment towards the contractual obligation and not towards infringement of any law. Even the AO has not produced any evidence to show that the amount so paid is on account of violation of law. Merely because the assessee has debited the amount as 'penalty', cannot be the basis to conclude that amount paid to RSEB is on account of infringement of any law. CIT(A) has ignored the fact that the AO has made the disallowance only because it is debited in the P&L A/c under the head penalty but has not referred to any particular section of any particular Act under which this amount is paid so as to construed it as penalty for infringement of any law. Even no enquiry is made from RSEB to ascertain the nature of payment. It is a settled law that the whether certain deduction from the receipt are permissible in law or not, question has to be decided according to the principles of law and not in accordance with the accounting entries made in the books of accounts as held by the Supreme Court in case of Tuticorin Alkali 38 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT Chemicals & Fertilizers Ltd. Vs. CIT 227 ITR 172. In view of above, disallowance confirmed by CIT(A) be directed to be deleted.
The ld CIT DR has supported the order of the lower authorities.
40. We have heard the rival contentions of both the parties and perused the material available on record. The assessee has submitted that an amount of Rs. 3,01,883/- has been paid to RSEB towards drawing excess power over and above the sanction capacity. It is therefore, a matter which falls within the realm of contractual relationship between the assessee and the RSEB and it is clearly in the nature of contractual payment rather than infringement of any law of the land. In light of that, we delete the disallowance of Rs. 3,01,883/- paid to RSEB.
41. The 3rd ground of the assessee's appeal is against confirming the disallowance of Rs. 19,00,000/- on adhoc basis out of repairs and maintenance expenses by considering the same as incurred on repairs of the guest house building. The ld Assessing Officer has observed that the assessee maintained a guest house at Alwar & Head office at Delhi. The total expenditure on guest house including repair & maintenance expenses of Rs.15,66,484/-. The same has been disallowed u/s 37(4) in 39 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT the computation of total income. The ld AO on verification of details of Delhi office observed that building repair & maintenance expenses includes expenditure incurred on guest house at 15 Friends Colony, New Delhi. He estimated such expenses at Rs.19 lacs considering that in A.Y. 95-96, such expenses estimated at Rs.17 lacs has been accepted by CIT(A) & disallowed the same.
The Ld. CIT(A) confirmed the disallowance by upholding the findings of the AO considering the past history of the case.
The AR of the assessee has submitted that it may be noted that the tax auditor has sorted out the expenditure on repair & maintenance at Delhi at Rs.1,68,707/- which is part of the total disallowance of Rs.15,66,484/- made by the assessee in the computation of total income. The AO after examining the detail of furniture repair, building repair, miscellaneous expenses & maintenance expenses has pointed out three vouchers in respect of building repair (without amount) & 3 vouchers of maintenance expenses for AC amounting to Rs.1,34,080/- which pertains to FC-15 Friends Colony, Delhi. The assessee has also its head office at 15 Friends Colony, Delhi. The expenditure pointed out by the AO is less than the repair & maintenance expenses disallowed by 40 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT the assessee at Rs.1,68,707/-. On the basis of the disallowance made in last year, the disallowance cannot be estimated during the year when complete details were submitted to the AO & after examining the same AO has only pointed out the specific instance of expenses pertaining to the guest house. In view of above, disallowance of Rs.19 lacs confirmed by CIT(A) be directed to be deleted.
At the outset, the ld CIT DR has supported the order of the lower authorities.
42. We have heard the rival contentions of both the parties and perused the material available on the record. On perusal of the records, it is noted that the AO has highlighted specific expenses amounting to Rs.2,11,997/- incurred towards repair and maintenance of the guest house at 15 Friends colony, New Delhi. It is also noted that the assessee has already disallowed an amount of Rs. 1,68,707/- u/s 37(4) while filing its return of income. In light of that, we do not see any justification in AO making an estimation and disallowance at Rs. 19,00,000/-. We accordingly direct the AO to restrict the disallowance to Rs. 2,11,997/-. Given that the assessee has already disallowed Rs. 1,68,707/-, the balance disallowance of Rs. 43,290/- should be made in 41 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT the hands of the assessee. Hence this ground of the assessee is partly allowed.
43. The 4th ground of the assessee's appeal is against confirming disallowance of Rs.12,38,418/- out of Foreign Travel. The ld AO made disallowance of Rs. 12,38,418/- out of the foreign travelling expenses of Rs. 23,23,444/- in respect of following visits. The CIT(A) confirmed the disallowance by upholding the findings of the AO. Name of Person Place Amount Purpose Reasons for disallowance by AO Sh. DK Modi Sweden 2,03,781/- Discussion Power is major raw with foreign material & installation collaborator of DG set is very much for DG Set desired hence expenditure for acquiring capital asset is capital expenditure Sh. Ashok Sweden, 1,61,253/- Exploring 2/3 disallowed since Kumar France possibility of visit to Sweden & & purchasing France was for Switzerland second hand acquiring capital asset DG Set & Export matter Sh. Ashok Geneva, 2,33,587/- Discussion 3/4 of expenditure Kumar London & regarding disallowed since Chesterfield Euro issue & purpose relating to foreign Euro issue, expenses currency on business & purchase bond, export, of machinery relates to expansion of capital outlay plant & second hand storage tank DK Modi UK, USA, 1,92,954/- Business & 50% disallowed for Switzerland & Export want of necessary Dubai promotion details regarding allowability of 42 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT expenditure as per rule 6D Sh. Ashok Japan 1,60,762/- To attend Since visit was for Kumar design acquiring capital asset, conference hence expenditure is for expansion treated as capital of existing Membrance Plant CB Garg Japan 1,08,173/- -------------Do-- -------------Do--------------
LN Bansal Sweden, 92,634 Exploring 2/3 disallowed since
France possibility of visit to Sweden &
& purchasing France was for
Switzerland second hand acquiring capital asset
DG Set &
Export matter
KN Modi & - 3,24,770/- Since details not filed
Ashok Kumar (Rs.2,10,4 expenditure disallowed
15+ Rs.
1,14,355/-
)
It may be pointed out that there is no dispute that the foreign travel was made in course of the running business to have discussions regarding acquiring of capital asset, raising funds and attend conference for the expansion of the business. The Bombay High Court in case of Bralco Metal Industries Pvt. Ltd. Vs. CIT 206 ITR 477 has held that expenditure on foreign tour of managing director to examine the suitability of machinery for a running business is not capital in nature where no machinery was purchased. In the present case also no new capital asset has been purchased. The AO has also not pointed out that any particular visit is correlated with purchase of any specific asset.
43 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT Thus, the disallowance made by lower authorities is uncalled for. Further discussion for raising of funds is otherwise not a capital expenditure. All these expenditures were for the purpose of existing business & not for setting up or establishment of new business. Hence, the entire foreign travel expenditure is allowable as revenue expenditure u/s 37. Reliance is also placed on the following case:-
(i) CIT Vs. Shah Theatres Pvt. Ltd. 169 ITR 499 (Raj.) The CIT(A) in its order without distinguishing the case held that the case law relied by the assessee is not applicable to the facts of the case. In respect of the visit of Dr. KN Modi dt. 25.09.95 for Rs.
2,10,415/-, the same is along with Dr. DK Modi in which expenditure of Rs. 2,03,781/- as stated above was incurred. In view of above, the disallowance confirmed by CIT(A) out of Foreign Traveling Expenses be directed to be deleted.
The ld CIT DR has supported the order of the lower authorities.
44. We have heard the rival contentions of both the parties and perused the material available on the record. On perusal of the records especially the purpose of the foreign visits given by the assessee as well as the reasons for disallowance given by the AO, it is noted that the 44 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT disallowance has been made primarily on account of the fact that the foreign visits have been undertaken and the corresponding expenditure have been incurred for the purpose of acquiring the capital assets and hence the same has been treated by the AO as capital expenditure. The ld. AR has submitted that there is no dispute that the foreign travel was undertaken in connection with acquisition of capital assets besides other reasons such as attending conference etc. At the same time the ld. AR submitted that no new capital assets has been purchased or acquired by the assessee. The decision of Hon'ble Bombay High Court in case of Bralco Metal Industries Pvt. Ltd.(supra) was brought to the notice of Bench in support of the contention that the expenditure on foreign travel of Managing Director to examine the suitability of machinery for a running business is not capital in nature where no machinery was purchased. In light of above, we set-aside the matter to the file of the AO to examine where any new capital assets were purchased by the assesse pursuant to foreign visits made during the year under consideration. Whether it is found that no new capital assets have been purchased by the assessee, the AO is directed to allow the foreign travel expenditure as a revenue expenditure.
45 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT
45. The 5th ground of the assessee's appeal is against confirming disallowance of Rs. 1,04,108/- out of legal charges. The AO noted that out of the provision for legal expenses made during the year, Rs.1,04,108/- has been paid in June 1996 to National Quality assurance Ltd. on the basis of invoice dt. 29.02.96 which is towards the cost of registration including surveyance visit for the year 31.03.1997. The AO considered this claim as related to A.Y. 97-98 & accordingly made the disallowance.
The Ld. CIT(A) confirmed the disallowance holding that purpose of this expenses was AY 1997-98 and the liability has been crystallized in AY 1997-98.
The ld AR of the assessee has submitted that it is not in dispute that invoice was raised on 29.02.96 i.e. in the year under consideration. The assessee thus has a present obligation arising from the past event, settlement of which is expected to result in an out flow from the enterprise of resources. The payment is also made in June 96. Hence, provision made for such liability is allowable expenditure as per AS 29. Simply because it is for the year 31.03.97 would not make it expenditure relevant to A.Y. 97-98. It can be noted that even the 46 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT provision for audit fees is allowed in a particular year even though the services are rendered in the subsequent year. In next year the AO has not allowed this expenditure and therefore if it is not allowed in the year under consideration it would never be allowed. Supreme Court in case of CIT Vs. Excel Industries Ltd. 93 DTR 457 has held that when the rate of tax remained the same in present A.Y. as well as in subsequent A.Y., the dispute raised by the Revenue is entirely academic or at best may have a minor tax effect. There was, therefore, no need for the Revenue to continue with the litigation when it was quite clear that not only was it fruitless (on merits) but also that it may not have added anything much to the public coffers. In view of above, the addition confirmed by CIT(A) be deleted.
At the outset, the ld CIT DR has supported the order of the lower authorities.
46. 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 assessee has incurred an amount of Rs. 1,04,108/- towards the cost of registration including the surveyance visit paid to National Quality assurance Ltd. Given that there is no change in the rate of tax for the 47 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT year under consideration and the subsequent year, there is no loss which is caused to the revenue by virtue of assessee claiming the said expenditure based on the invoice raised during the year as against the stand of the revenue that the same should be allowed in the subsequent assessment year. Hence following decision of Hon'ble Supreme Court in the case of Excel Industries ltd. (supra), this ground is allowed.
47. The 6th ground of the assessee's appeal is against confirming disallowance of Rs.2 lacs out of publicity expenses. The AO observed that voucher of Rs.1 lacs for amount paid to Equestrian Federation of India for sponsorship is not filed. Further, payment of Rs.21,000/- to Sh. Jawahar Jain Education Institute is towards donation & contribution to certain welfare Association, Education Society, Puja Samiti & Trust for Rs. 38,200/- as listed on Page 17-18 of the order are also in the nature of donation. Accordingly, he made disallowance of Rs. 2 lacs.
The Ld. CIT(A) confirmed the disallowance holding that assessee himself admitted that he had not produced the evidences for expenses and cross cheque payment does not establish that the expenditure has been incurred wholly and exclusively for the purpose of business.
48 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT Further the nature of expenses was donation and no evidence of souvenir has been filed. The disallowance is reasonable out of total expenses of Rs.10.34 lacs.
The ld AR of the assessee has submitted that the payment of Rs.1 lacs to Equestrian Federation of India for sponsorship is made by cheque. The payment for sponsorship is not doubted by the lower authorities. Hence, the same cannot be disallowed. The other payment mentioned in the assessment order is for advertisement in the souvenir. These are normal socio welfare expenditure required to be incurred to maintain good & cordial relationship. Only because the assessee could not produced the evidence of expenses that too after a lapse of 15 years particularly when the assessee has become a sick company and there was labour unrest, the expenditure cannot be disallowed more particularly when payment is made by cheque and the genuineness of the expenditure is not in doubt. Without prejudice to above, when the AO has specified the amount of such expenditure at Rs. 1,59,200/- after thorough verification there is no reason to make lump sum disallowance of Rs. 2 lacs. In view of above, the disallowance confirmed by CIT(A) be deleted.
49 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT At the outset, the ld 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 not in dispute that the amount of Rs 1 lacs has been paid to Equestrian Federation of India and other amounts have been paid to Shri Jawahar Jain education Institute and Puja Samiti and other trust to support their educational and social activities. The ld. AR has submitted its inability to submit the supporting documentation in view of the fact that the assessee has become a sick company and the matter is pretty old. Given that the genuineness of the expenditure has not been doubted and the payments has been made by cheque, we delete the disallowance of Rs. 2 lacs out of the publicity expenses.
49. The 8th ground of the assessee's appeal is against confirming disallowance of Rs.21,96,755/- out of interest payment. The AO observed that assessee has borrowed the funds on interest but the same has been advanced to group concern at lower rate or at Nil Rate whereas interest has been charged from others @18% to 26.5%. It is further observed that inter corporate deposits has been raised & the 50 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT same is invested in Fixed Deposits for obtaining Bank guarantee for group Concern. Accordingly, he made disallowance of interest of Rs.21,96,755/- as under:-
Name of the Amount (in Date Differential Disallowable Company lacs) Interest Amount M/s Annapurna 12.58 17.04.95 18% 2,17,005/- Cement Ltd.
M/s Transitional 11.50 29.04.95 6% (18-12) 63,250/- Travel Ltd.
Transitional 26.00 21.12.95 3% (18-15) 22,750/- Securities Ltd.
MACL Securities 25.00 25.12.95 3% (18-15) 18,750/- & Finance Ltd.
Bank Guarantee 500.00 05.11.95 3.75% 18,75,000/- for Modi Cement The ld CIT(A) confirmed the disallowance by holding that AO has established nexus between borrowed funds and amount advanced to group concerns and in AY 95-96 similar disallowance is confirmed by Hon'ble ITAT.
The AR of the assessee has submitted that the AO has assumed that from these parties assessee should have charged interest @ 18% from above concern instead of Nil Rate or 12% or 15% charged from them. He has therefore calculated the notional income & made disallowance of interest. There is no basis for the same. It is not the case of the AO that assessee has borrowed the funds at a higher rate &
51 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT then given the same at a lower rate. Infact AO himself has stated that assessee has raised inter corporate deposit @ 8.5% & made investment in FDR yielding a rate of 9%. If in some cases assessee has charged rate of interest 18% or more on the inter corporate deposit given by it, the same cannot be a basis for holding that assessee must charge interest from all other parties at such higher rate. No nexus has been established by the AO before making the disallowance. It also ignored the fact that assessee has interest free funds by way of Share Capital & Reserve & Surplus to the extent of 68.35 crores which is much higher than the so called advances given at lower rate. Reliance in this connection is placed on the following cases:-
(i) SA Builders 289 ITR 1 (SC) (ii) CIT Vs. Bharati Televenture Ltd. 51 DTR 98 (Del) (2011) (iii) CIT Vs. Motor Sales Ltd 304 ITR 123 (All). (iv) JCIT V/s ITC Ltd. (2008) 299 ITR 341 (Kolkata) (SB) (v) CIT Vs. Radiko Khaitan Ltd. 274 ITR 354 (All)
The CIT(A) has wrongly observed that in AY 1995-96, Hon'ble ITAT has confirmed the similar disallowance in as much as no such issue was before the Hon'ble ITAT in that AY as evident from the copy of the ITAT order enclosed herewith. In view of above, the disallowance confirmed by CIT(A) be deleted.
52 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT At the outset, the ld CIT DR has supported the order of the lower authorities.
50. We have heard the rival contentions and perused the material available on the record. From the perusal of the records, it is noted that the assessee company has raised interest bearing fresh secured loans to the extent of Rs. 3.2 crores. The details of interest has increased to Rs. 9.84 crores as against 6.06 crores last year and credit of interest has increased to 0.014 crores. As per the AO, the increase in interest liability is on account of advances given at concessional rate of interest or utilizing the funds for taking the FDR for revival of Modi Cement Ltd. This is evident from the facts that total of secured and unsecured loans during the year are Rs.72.01 crores as against Rs. 63.79 crores last year. As against this, the assessee claimed that this amount has been advanced from the share capital and reserves and surplus account. Regarding the assessee's contention, ld CIT(A) has given his finding stating that loans and advances given by the assessee has no bearing to the share capital of Rs. 29.53 crores which was raised some 17 years back as the same has already been eroded given that the assessee has become a sick company. Ld CIT(A) has further held that the necessary nexus has been established between the borrowed 53 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT funds and the amount advances to the sister concern and the same findings could not been controverted by the assessee. Further, the ld. AO has submitted that the assessee had advanced funds as a measure of commercial expediency to the group companies. In this regard the assessee has submitted before the Assessing officer that it gave advances to the companies mentioned in letter No. 961 temporarily as a financial support in order to meet the statutory liabilities and dues towards salary of employees, workers and other expenses to these companies with the clear understanding that the same will be refunded back to the company. It was submitted that most of the companies are sick companies and financial support was given on account of business responsibilities and to protect the goodwill in the market as these companies are under the same management. Regarding bank guarantee for Modi Cement, the Assessing officer noted that the assessee company arranged a bank guarantee for Rs. 5 crores in favour of IDBI by depositing Rs. 5 crores with the bank as FD and such arrangement was made as rehabilitation package of M/s Modi Cement. A further sum of Rs. 5 crores pledged with the bank in a non-lien fixed deposit a/c, out of the funds raised from the promoters. It was further noted that the inspection team of the companies 54 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT department required assessee company as to why such funds to the extent of Rs. 10 crores are blocked to rehabilitate to M/s Modi Cement Ltd. It was submitted that Modi Cement Ltd. is group company and on account of moral responsibility, the company extended all possible support for rehabilitation. However, the explanation given by the assessee company was not found satisfactory by the AO. In this regard reference of the Bench was drawn to the recent decision of Hon'ble Supreme Court in the case of Hero Cycles Pvt. Ltd. 94 CCH 0097 wherein it was held as follows:
" Applying the aforesaid ratio (laid down in case of S.A. Builders ltd 288 ITR 1(SC)) to the facts of this case as already noted above, it is manifest that the advance to M/s Hero Fibres limited became imperative as a business expediency in view of the undertaking given to the financial institutions by the assesee to the effect that it would provide additional margin to M/s Hero Fibres Limited to meet the working capital for meeting any cash loses."
In light of decision of Hon'ble Supreme court in case of Hero cycles, the bank guarantee for Rs. 5 crores in favour of IDBI by depositing Rs. 5 crores with the bank as FD became imperative as a business expediency 55 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT as part of the rehabilitation package of M/s Modi Cement which is one of the group companies. Similarly, the assessee has supported the other group companies which were also going through the financial and liquidity crunch in order to meet the statutory liabilities and dues towards salary of employees, workers and other expenses and has thus satisfied the test of commercial expediency in respect of other loan and advances as well. In light of that, we delete the disallowance of Rs 21,96,755/-. In the result, ground of the assessee is allowed.
51. The 9th ground of the assessee's appeal is against confirming disallowance of Rs.3,45,600/- out of interest expenses. The AO disallowed the interest expenditure on the ground that borrowed fund has been given for non-business purpose based on his findings in AY 1995-96.
The CIT(A) confirmed the disallowance by giving the following findings:-
"I have perused the assessment order as well as submission of the assessee, the assessment order for AY 1995-96 as well as CIT(A) order have been verified, it is found that the assessee gave loan Rs.4.35 lac to GM Modi Hospital and Research Centre and Medical Science and Rs.14.85 lac given 56 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT to Modi ARE Limited. The assessee has admitted that no interest had been charged on both the loans. Therefore, AO disallowed Rs.3,45,600/- @18% out of interest. The loan is remained during the year under consideration. The assessee did not raise this issue in appeal before the CIT(A). The facts are similar. Therefore, the action of the AO is justified."
The ld AR of the assessee has submitted that the disallowance confirmed by CIT(A) is uncalled for as the advance was given to the group concerns in view of the commercial expediency and therefore interest is allowable expenditure in view of the decision of Supreme Court in case of S.A Builders case (referred supra). In AY 1995-96, this decision was not available and therefore the decision of AO for that year cannot be applied in the year under consideration. In view of above, the disallowance confirmed by CIT(A) be deleted.
The ld CIT DR supported the order of the lower authorities.
52. We have heard the rival contentions of both the parties and perused the material available on the record. Unlike the facts as narrated in respect of ground no. 8 above, the assessee has not been able to demonstrate how it satisfy the test of commercial expediency in respect of advances to GM Modi Hospital and Research Centre and 57 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT Medical Science and to Modi ARE Limited. In light of same, we are unable to accede to the contentions of the assessee and confirm the order of ld CIT(A). Hence, ground no. 9 of the assessee is dismissed.
53. The 10th ground of the assessee's appeal is against confirming addition of Rs. 82,67,790 u/s 40A(3). He has further erred in not considering the applicability of Rule 6DD(j) as was existing till 25.07.1995. The assessee has made payment of freight & cartage exceeding Rs.10,000/- in each case amounting to Rs. 4,13,38,973/- . The AO disallowed 20% of the same i.e. Rs. 82,67,790/- on the ground that the payment was not covered by rule 6DD.
The Ld. CIT(A) confirmed the disallowance by holding that assessee's case is not covered under rule 6DD(g) or (j).
The Ld AR of the assessee has submitted that it may be pointed out that Rule 6DD(j) provided an exception to applicability of section 40A(3) where it was not practicable to make payment by crossed cheque or would have caused genuine difficulty to payee having regard to the nature of transaction and the necessity for expeditious settlement thereof. In case of freight & cartage expenses payment is required to be made by drivers on spot and it is not practicable to make payment 58 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT by crossed cheque. The said Rule 6DD(j) was substituted w.e.f 25/07/1995 and simultaneously the limit was increased to Rs. 20,000/- by Finance Act (No. 2) 1996 w.e.f 01/04/1997. Therefore, effectively Rule 6DD(j) as it was existing has to be construed to be inapplicable from AY 1997-98. The ld. CIT(A) has incorrectly held that assessee's case is not covered under Rule 6DD(j) as while saying so he has considered the substituted Rule 6DD(j) whereas in the assessee's case old Rule 6DD(j) is applicable and assessee's case is squarely covered under old Rule 6DD(j). In view of above the payment of Rs. 4,12,38,973/- made by the assessee to the drivers towards transportation of goods is covered by Rule 6DD(j) and therefore disallowance of Rs. 82,67,790/- made by the AO be deleted. Without prejudice to above, expenditure incurred upto 25.07.95 is Rs. 2,77,99,801/- as mentioned in TAR on which no disallowance u/s 40(A)(3) is justified in view of Rule 6DD(j). Otherwise also where the person to whom payment is made is genuine and cash is paid in exceptional circumstances in business expediency, the same cannot be disallowed u/s 40A(3). For this reliance is placed on the following case:-
(i) Anupam Tele Services Vs. ITO 2014-TIOL-161(Guj.)(HC)
(ii) Girdhari Lal Goenka Vs. CIT 179 ITR 122 (Cal.)(HC)
59 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT In view of above, the disallowance confirmed by CIT(A) be deleted. At the outset, the ld CIT DR has supported the order of the lower authorities.
54. We have heard the rival contentions of both the parties and perused the material available on the record. It is noted that Rule 6DD(j) was substituted w.e.f. 25.07.1995. Prior to the amendment, Rule 6DD(j) provided an exception to applicability of section 40A(3) wherein it was provided where it was not practical to make payment by crossed cheque or would have caused genuine difficulty to payee having regard to the nature of transaction and the necessity for expeditious settlement thereof. The ld. CIT(A) has however applied the amended rule 6DD(j) while confirming the disallowance which states that where payments was required to be made on a date on which the banks were closed either on account of holiday or strike. It is therefore clear that for the period ending 25.07.1995, pre-amended Rule 6DD(j) will be applicable. The ld. AR has submitted that these payments are in the nature of freight and cartage payments which are required to be made to the drivers on the spot and it is not practical to make payments by crossed cheques. Further, in the tax audit report the 60 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT auditors have given their remarks stating that the factory is situated in the backward area and the payments to the transporters have to be made in cash because such persons are not having banking facility around the factory area. In our view, the same proves genuineness of the transactions, the identity of the payee as well as the business expediency to make payment in cash in the backward area where the payee are not having the banking facility. Further looking at the intent of introduction of section 40A(3) which was to curb and reduce the possibilities of black money circulation in economy and taking into consideration the decision of Hon'ble Gujarat High Court in case of Anupam Tele Services (supra) and Hon'ble Rajasthan High court in case of Smt. Harshila Chordia (supra) wherein it was held that exceptions contained in Rule 6DD are not exhaustive and the said rule must be interpreted liberally and taking into consideration the business expediency of making cash payment, we hereby delete the disallowance of Rs. 82,67,790/- in the hands of the assessee.
55. The 11th ground of the assessee's appeal is against confirming disallowance of Rs.1,50,000/- out of telephone expenses. The AO observed that it is not possible to extract the information of expenses incurred on the residential phones of Chairman and MD. Considering 61 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT that an amount of Rs.1,91,953/- is already considered for disallowance under the head guest house against which Rs. 4 lacs was disallowed in the preceding year, a further disallowance of Rs.1.50 lacs was made.
The ld. CIT(A) confirmed the disallowance by giving the following findings:-
"I have perused the assessment order as well as submission of the assessee, such additions were made in AY 1995-96. This matter has been set aside in AY 1995-96 to the AO. Before CIT(A) in order dt. 07.03.2002 the assessee did not press this issue for Rs.1,05,439/-. Keeping in view of the past history and reasonableness of the disallowances, the addition of Rs.1.5 lac for non business purpose is justified."
The ld AR of the assessee has submitted that as explained in Ground No. 7 above no disallowance for personal use can be made in case of a company. In respect of telephone at guest house already a disallowance of Rs.1,91,953/- has been made. In these circumstances further disallowance of Rs.1.50 lacs is unjustified and the same be deleted. The lower authorities have made the disallowance merely on the basis of the past history of the case which is not justified more particularly when the disallowance has already been made. Without prejudice to above, it may be pointed out that the CIT(A) in his order 62 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT has stated that the assessee in AY 1995-96, has not press this issue for Rs.1,05,439/-. Thus, even if past history of the case is considered, the disallowance so made is excessive. In view of above, the disallowance confirmed by CIT(A) be deleted.
At the outset, the ld CIT DR has supported the order of the lower authorities.
56. We have heard the rival contentions of both the parties and perused the material available on the record. From the perusal of the records it is noted that the AO, relying on the preceding assessment year wherein the disallowance of Rs. 4 lacs was made in respect of telephone expenses on the guest house, has disallowed a sum of Rs. 1.5 lacs for the year under consideration. Given that the said disallowance is purely on estimate basis and also given the fact that the assessee has already disallowed an amount of Rs. 1,91,953/-, the adhoc disallowance of Rs. 1.5 lacs is hereby deleted.
57. The 12th ground of the assessee's appeal is against not allowing the claim of prior period expenses of Rs. 9,60,175/-. The AO disallowed the expenditure for the reason that assessee is following mercantile 63 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT system of accounting and it has not filed justification for allowability of the expenses.
The Ld. CIT(A) confirmed the disallowance by holding that assessee has not filed any explanation to show that liability to pay these expenses accrued and has been discharged during the year under consideration.
The ld AR of the assessee has submitted that it is to submit that in some cases the claim of the expenditure is not made by the concerned parties or bills are not submitted timely. In such cases expenditure is booked when bills are submitted in past performance. The expenditure includes Rs.1,70,961/- on account of salary & wages where liabilities have crystallized during the year on sanction of the payment. Further the rate of tax being same, it does not matter whether it is allowed as deduction in the year in which the expenditure is booked or in earlier year. For this reliance is placed on the following cases:-
(i) CIT Vs. Excel Industries Ltd. 358 ITR 295 (SC)
(ii) Saurashtra Cement & Chemical Industries Ltd. Vs CIT 213 ITR 523 (Guj.) (HC)
(iii) Rajasthan State Industrial Development & Inv. Corpn. Ltd.
Vs. ACIT (66 & 354/JP/08, dated 30-09-2008 for AY 2004- 05 and 138 & 235/JP/09 for AY 05-06 dated 08-01-2010) 64 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT
(iv) Instrumentation Ltd. V/s IAC (1163/JP/82 Assessment Year 1978-79) dated 28/09/1984 He further submitted that without prejudice to above, in case these prior period expenditures are not allowed in the year under consideration, then the same be directed to be allowed in the AY 1995- 96 to which it pertains. Further the assessee has also included in income Rs. 11,86,483/- on account of excess provision written off/ liabilities no longer required. This is more than the claim of prior period expenditure. In view of above, the disallowance confirmed by the CIT(A) be directed to be deleted.
At the outset, the ld CIT DR has supported the order of the lower authorities.
58. We have heard the rival contentions of both the parties and perused the material available on the record. As we have held while disposing of previous grounds, the rate of tax has not changed for the year under consideration and the subsequent assessment year and the dispute raised by the revenue is clearly academic or at best may have a minor tax effect as held by the Hon'ble Supreme court in case of Excel Industries Ltd. (supra) and in case of Rajasthan State Industrial Development & investment Corporation Ltd.(supra). Given that there is 65 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT no dispute that the expenses have been incurred for the purposes of business and the genuineness of the expenses are not under question, we hereby delete the disallowance of Rs. 9,60,175/-.
59. The 15th ground of the assessee's appeal is against confirming the addition of Rs. 4,73,264/- on account of loss in transit. The AO observed that there is loss of 45 MT of Caustic Soda Lye in transit. He accordingly disallowed this loss and made addition of Rs. 4,73,264/-.
The Ld. CIT(A) confirmed the addition by holding that similar addition was made in AY 1995-96, the assessee did not file any evidence and justification, the transit loss depend on terms of the supplier company as well as insurance aspect which has not been brought on record.
The ld AR of the assessee has submitted that no material has been brought on record to establish that claim of loss of 45 MT of Caustic Soda Lye was not genuine. Hence, the disallowance is uncalled for. The predecessor CIT(A) has also deleted this addition at para 28 of his order, copy enclosed. In view of above addition confirmed by CIT(A) be deleted.
66 ITA 382 & 420/JP/2011_ M/s Lord Chloro Alkalies Ltd. Vs ACIT At the outset, the ld CIT DR has supported the order of the lower authorities.
60. We have heard the rival contentions of both the parties and perused the material available on the record. The ld. CIT(A) while confirming the disallowance has held that the assessee did not file any evidence and justification in support of the transit loss of Rs.4,73,264/-. Hence we do not see any justification to interfere in the order of ld. CIT(A) hence same is confirmed and the ground taken by the assessee is dismissed.
61. In the result, the revenue's appeal is dismissed and the assessee's appeal is partly allowed.
Order pronounced in the open court on 19/08/2016.
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(Laliet Kumar) (Vikram Singh Yadav)
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fnukad@Dated:- 19/ 08/2016
67 ITA 382 & 420/JP/2011_
M/s Lord Chloro Alkalies Ltd. Vs ACIT
*Pillai
vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- M/s Lord Chloro Alkali Limited, Formerly known as Modi Alkalies Limited, Alwar.
2. izR;FkhZ@ The Respondent- The ACIT, Circle-1, Alwar.
3. vk;dj vk;qDr@ CIT, Alwar
4. vk;dj vk;qDr@ CIT(A) Alwar
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No. 382 & 420/JP/2011) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar