IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH : `H' : NEW DELHI
BEFORE SH. R.S. SYAL, AM & SH. A.T. VARKEY, JM
ITA No. 534/Del/2009
Assessment Year:2005-06
Assistant Commissioner Vs. M/s Talbros Engineering Ltd.
of Income Tax, Circle-I, Plot No. 74-75, Sector-6,
Faridabad. Faridabad.
(PAN:AABCT0247L)
(Appellant) (Respondent)
C.O. No. 25/Del/2009
[Arising out of ITA No. 534/Del/2009]
Assessment Year:2005-06
M/s Talbros Engineering Ltd. Vs. Assistant Commissioner
Plot No. 74-75, Sector-6, of Income Tax, Circle-I,
Faridabad. Faridabad.
(PAN:AABCT0247L)
(Appellant) (Respondent)
Department by: Sh. J.P. Chandrakar, Sr. DR
Assessee by : Dr. Rakesh Gupta and Mr. Ashwani Taneja,
Advocates & Sh. Rajesh Talwar, M.D.
ORDER
PER R.S. SYAL, AM:
This appeal by the Revenue and Cross Objection by the assessee arise out
of the order passed by learned CIT(A) on 08.12.2008 in relation to the
assessment year 2005-06.
2. The first ground of the Revenue's appeal is against the deletion of
addition of Rs. 1,19,93,081/- made by the Assessing Officer on account of fall in
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G.P. rate from 18.52% in the preceding year to 15.71% during the year in
question.
3. Briefly stated the facts of the case are that the assesses is engaged in the
manufacture of automobile parts. During the course of the assessment
proceedings finalized under section 144 of the Income-tax Act, 1961 (hereinafter
also called "the Act"), the Assessing Officer observed that the G.P. rate of the
assessee had reduced from 18.52% from the preceding year to 15.71%. On being
called upon to explain the reasons for decline in the G.P. rate, the assessee stated
that there was an increase in the prices of steel round bar during the year which
led to the decline in the gross profit rate. The Assessing Officer observed that
certain expenses forming part of the computation of the gross profit have
reduced as a percentage of sales in comparison with the preceding year. He,
therefore, refused to accept the assessee's explanation for the reduction in the
gross profit rate. Rejecting the books of account under section 145(3) of the Act,
the Assessing Officer adopted the gross profit rate of the preceding year at
18.52%. This resulted into the making of a G.P. addition of Rs. 1.19 crore. The
learned CIT(A) got convinced with the assessee's submissions and ordered for
the deletion of addition.
4. After considering the rival submissions and perusing the relevant material
on record, it is observed that the assessee filed certain additional evidence before
the learned CIT(A), who chose to seek remand report from the Assessing
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Officer, a copy of which is available on pages 88 to 92 of the department paper
book. Coming back to the merits of this ground, it can be seen that the Assessing
Officer has assigned no reason for rejecting the books of account other than a
decline in the gross profit rate. It is a matter of record that the assessee is
engaged in a manufacturing activity and has maintained all the stock registers
required for the purposes of the payment of excise duty. The Assessing Officer
has not controverted the quantity or value of the closing and opening inventory.
There is no dearth of judicial precedents unanimously holding that books of
account cannot be rejected on the solitary reason of decline in the gross profit
rate. Since the Assessing Officer was swayed only by the decline in the G.P. rate
to reject the books of account without anything else, we are of the considered
opinion that such an action of the Assessing Officer has no sanction of law. The
assessee has placed on record a copy of Chart, which was also filed before the
Assessing Officer to demonstrate that there has been an alarming increase in the
prices of steel round bar. For example, the rate per mt. of raw material purchased
from R.I.N.L. increased from Rs. 20,350/- in the preceding year to Rs. 26,900 in
the current year, thereby registering an increase of 32%. In the like manner,
there is increase in the rate of raw material from other parties ranging between
19% to 36%. This Chart indicates that the input costs became costly in the
instant year in comparison with the rates prevailing in the preceding year which
led to the reduction in the overall profitability. The AO has not contradicted the
contents of such chart. When we consider this factor pushing down the gross
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profit rate coupled with fact that the Assessing Officer has not pointed out any
mistake in the quantitative records maintained by the assessee or the value of the
closing stock, the only conclusion which in our considered opinion can be drawn
is that the books of account were properly maintained. We, therefore, hold that
the learned CIT(A) was justified in cancelling the action of the AO in rejecting
the books and resultantly deleting the addition of Rs. 1.19 crore on this score.
5. The second ground is against the deletion of addition of Rs. 45,94,710/-
made by the Assessing Officer under Section 68 of the Act. Briefly stated the
facts of this ground are that the assessee received fixed deposits from nine
persons for a total sum of Rs. 54.75 lac. The Assessing Officer called upon the
assessee to prove the genuineness of the transactions of receipt of FDRs from
these persons with necessary evidence. The assessee filed some details and also
produced one of such depositors. In the absence of the assessee producing the
other creditors, the Assessing Officer held that the deposits amounting to Rs.
44.00 lac received from the following six persons were bogus:
S. No. Name of the persons Amount in Rs.
1. Rajesh Talwar 1,50,000/-
2. Geeta Talwar 10,00,000/-
3. Rajesh Talwar HUF 1,50,000/-
4. Raghav Gupta 10,00,000/-
5. Sameer Gupta 12,00,000/-
6. Meera Gupta 9,00,000/-
7. Tushar K. Chopra 10,00,000/-
8. Tarun Talwar 35,000/-
9. Sameena Talwar 40,000/-
Total 54,75,000/-
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6. The assessee had also claimed deduction in respect of interest paid on
such FDRs to its depositors. The Assessing Officer made a further addition of
Rs. 1,94,710/-, being the amount of interest paid in respect of about the six
credits. This led to the making of a total addition of Rs. 45.94 lacs. The learned
CIT(A), after considering the remand report from the Assessing Officer, got
convinced with the assessee's submissions and ordered for the deletion of
addition.
7. After considering the rival submissions and perusing the relevant material
on record, it is observed that the Assessing Officer made addition under section
68 of the Act in respect of the above six depositors by treating them as bogus
mainly due to the failure of the assessee in producing these depositors. At the
outset, we emphasise on the duty of the assessee to comply with the
requirements of the Assessing Officer in the course of assessment proceedings.
If the Assessing Officer directs the assessee to produce the creditors, it becomes
the duty of the assessee to produce the creditors so as to establish the
genuineness of the credits to the satisfaction of the AO. This rule is not
infallible. If the assessee, pursuant to the direction of the Assessing Officer for
producing certain creditors, expresses its inability to produce the persons, but
places on record sufficient evidence to prove the genuineness of the deposits,
then the addition cannot be made under section 68 of the Act without the AO
discharging his duty to summon the creditors. Presently, we are dealing with a
situation in which the assessee intimated the AO to call these creditors at his
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own, which he did not and chose to make addition without rebutting the
evidence filed by the assessee. We will deal with all the six creditors one by
one.
8. The first creditor is Sh. Rajesh Talwar, who deposited a sum of Rs. 1.50
lac with the assessee company. Page no. 401 of the paper book is his
confirmation for having deposited the said sum through a cheque drawn on
Standard Chartered Bank giving cheque number and date. This confirmation
also gives Permanent Account Number of the depositor. Not only has this
depositor filed his return of income including the interest earned from the
assessee company on the above FDRs, the assessee also furnished a copy of the
bank account of this depositor. From the pass book of this depositor, a copy of
which is available at page 34 of the paper book, it can be seen that there is a
withdrawal for a sum of Rs. 1.50 lac with the narration given in the bank
statement mentioning the name of the assessee against the amount of
withdrawal. From this pass book, it can be seen that most of the entries of
deposits and withdrawals are transactions through cheques. There is nothing of
the sort like deposit of an equal or round about sum in cash in the bank account
of the depositor before the issuance of cheque to the assessee company for the
amount of loan. Copy of return of this depositor for the year under consideration
is also available on page 435 of the paper book. The depositor also filed his Trial
balance along with the return of income which divulges the amount of FDR
made with the bank. It is not the case of the Revenue that such deposit has been
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held as not genuine in his assessment. In view of the above overwhelming
evidence, supporting the genuineness of transaction along with the identity and
capacity of the depositor, we are of the considered opinion that the learned
CIT(A) was right in deleting this addition.
9. Next depositor is Mrs. Gita Talwar, who deposited a sum of Rs. 10 lac
with the assessee company. A copy of her confirmation is available on page 397
of the paper book which indicates that she deposited this sum of Rs. 10 lac in
two phases, namely, Rs. 7 lac vide cheque dated 06.04.2014 and Rs. 3 lac again
vide cheque dated 14.07.2014. Her bank statement is available on pages 454 and
457 of the paper book, from which it can been seen that there are withdrawals
for the equal amounts favouring the assessee company. Here again, we find that
the deposits in her bank accounts are mostly through cheques and there is no
cash deposit in her banks accounts immediately before or close to the deposit
with the assessee company. She has also filed her return of income for the year
under consideration, a copy of which is available on page 455 of the paper book,
indicating the amount of FDR with the assessee company. Her income also
includes interest income earned from the assessee in respect of various deposits
kept by her with the assessee company from time to time. Payment vouchers
towards interest are available on pages 458 to 466 of the paper book, which
evidence the payment of interest after due deduction of tax and source. In the
light of the above evidence which were also available before the Assessing
Officer, we are satisfied that the assessee has proved the genuineness of this
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credit. The impugned order deleting this addition is, therefore, upheld on this
score.
10. The third creditor is Rajesh Talwar, HUF, who invested a sum of Rs. 1.50
lac in the assessee's FDRs. His confirmation is available on page 400 of the
paper book, which gives details of such deposits made through cheque on
14.07.2004. The Permanent Account Number of this depositor along with
details of Range where it is assessed, is also given. This amount was paid
through cheque of Standard Chartered Bank. A copy of pass book evidencing
withdrawal of Rs. 1.50 lac is also available on page 445 of the paper book. Here
again, we find that most of the transactions in this bank account are through
cheques and there is no cash deposit immediately before or close to the date of
issuance of cheque in favour of the assessee. This depositor has also filed its
return of income indicating the amount invested with the assessee company,
whose copy is available on page 446 of the paper book. In view of the above
evidence, it is crystal clear that the above deposit of Rs. 1.50 lac made with the
assessee company is genuine. We, therefore, uphold the deletion of this addition
by the learned CIT(A).
11. The next depositor is Sh. Raghav Gupta, who deposited a sum of Rs. 10
lac with the assessee company. His confirmation is available on page 405 of the
paper book from which it can be seen that he deposited the sum vide a cheque
dated 13.12.2004 drawn on Citi Bank. A perusal of the bank statement of this
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depositor again shows that most of the transactions are through cheques and
there is no cash deposit in his bank account near the issuance of the cheque. This
depositor is also assessed to tax inasmuch as a copy of his return is available on
page 404 of the paper book. In view of the above evidence, we are satisfied that
the genuineness of the transaction of this deposit along with the identity and
capacity of the depositor, stand proved. We, therefore, uphold the impugned
order deleting this addition.
12. The next depositor is Sh. Sameer Gupta, whose confirmation is available
on page 402 of the paper book. This deposit of Rs. 12 lac was made by him
through cheque dated 13.12.2004. A copy of his pass book is available on page
403 of the paper book, from which it can be seen that a cheque for Rs. 12 lac
was issued in favour of the assessee. Again most of the transactions in his bank
account are made through cheques and there is no cash deposit in his bank
account before making of the deposit with the assessee company. These facts
prove the genuineness of the transactions. He is also assessed to tax having filed
his return of income for the year in question indicating the amount of deposit
with the assessee company. In our considered opinion, learned CIT(A) was right
in deleting the addition on this count.
13. The last depositor is Mrs. Meera Gupta, who deposited a sum of Rs. 9 lac
with the assessee company. Her confirmation is available on page 408 of the
paper book which indicates that the deposit of Rs. 9 lac was made by her vide
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cheque dated 10.01.2005 drawn at Standard Chartered Bank. A copy of her pass
book indicates withdrawal of the same. Again we find that most of the
transactions in her bank account are made through cheques and there is no cash
deposit in her pass book before the transaction of making deposit with the
assessee company. A copy of her return along with TDS certificate towards
interest earned from the assessee company are also available in the paper book.
The fact of investment made with the assessee-company has been disclosed in
the documents accompany her return of income. There is nothing to indicate
that such deposit has been questioned in her assessment. In view of the above
facts, we are satisfied that the assessee has proved the genuineness of this
deposit.
14. Once the receipt of deposits amounting to Rs. 44 lac from the above six
depositors is held to be genuine, the consequent disallowance of interest
amounting to Rs. 1,94,710/- made by the Assessing Officer would automatically
stand deleted. We, therefore, uphold the impugned order in deleting the addition
of Rs. 45.94 lacs.
15. Ground no. 3 of the Revenue's appeal is against the deletion of addition of
Rs. 21,68,938/- on account of capital subsidy on sales tax. The facts apropos this
ground are that the assessee received a subsidy of sales tax amounting to Rs.
21,68,938/-, which was claimed as a capital receipt not chargeable to tax. On
being called upon to explain as to why this subsidy be not treated as a revenue
receipt, the assessee stated that it was given as per the scheme of the State
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Government for encouraging the industries to set up their units in rural areas and
for compensating for the hardship in setting up such industries in remote rural
areas. The assessee explained that this sales tax subsidy was capital in nature
and hence not taxable. Rejecting the assessee's contention, the Assessing Officer
treated this amount as a revenue by relying on the judgment of the Hon'ble
Supreme Court in the case of Sahney Steel and Press Works Ltd. Vs. CIT, 228
ITR 253. The ld. CIT(A) ordered for the deletion of this addition.
16. We have heard the rival submissions and perused the relevant material on
record. The relevant factor for decision as to whether subsidy is a capital or a
revenue receipt, is its nature and object. If some subsidy is given for
encouraging the industries for setting up units in the remote or rural areas etc.,
then such subsidy assumes the character of a capital receipt. On the other hand,
if subsidy is given for enabling an assessee to run its business more profitably,
then it would amount to an operational subsidy chargeable to tax. It is clear from
the assessee's submissions reproduced in the assessment order that the subsidy
was given to the assessee as a compensation for setting up its unit in remote
rural areas. The nature of such subsidy has not been disputed by the AO. As the
nature of subsidy in the present facts and circumstances is undisputed, being
towards the setting up of unit in remote and rural areas, the natural conclusion
which therefore follows is that this subsidy is a capital receipt and not
chargeable to tax. The ld. DR contended that the nature of subsidy has
undergone change because of the assessee itself stating that it opted for the half
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of the amount of the deferred sales tax by making payment for the remaining
half of the amount of the deferred tax upfront. In our considered opinion, the
exercise of option by the assessee in paying half of the amount of deferred tax
upfront thereby retaining the remaining half as subsidy, cannot convert the
otherwise capital subsidy into an item of revenue. The Special Bench of the
Tribunal in Sulzer India Ltd. Vs. DCIT, (2010) 134 TTJ (Mum.) (SB) 385 has
held that the payment of net present value against a deferred sales tax liability
cannot be considered as income under section 41(1) of the Act. This view of the
Special Bench has been recently upheld by the Hon'ble Bombay High Court
vide its judgment dated 5.12.2014, a copy of which has been made available by
the ld. AR. In view of the above forgoing discussions, we are of the considered
opinion that the learned CIT(A) was justified in treating sales tax subsidy as a
capital receipt.
17. Ground no. 4 of the appeal is against the deletion of addition of Rs.
1062270/-. Facts of this ground are that the assessee valued its stock at cost
prise. On perusal of such valuation made by the assessee, it was noticed by the
Assessing Officer that while apportioning the expenses, the assessee has taken
72% of the power and electricity expenses as pertaining to the factory and
included the same in the direct cost of production while remaining 28% was
apportioned to the administrative block, thereby excluding the same from direct
expenses. The Assessing Officer held that 95% of electricity expenses were to
be considered as attributable to factory. He, therefore, added a sum of Rs.
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6,12,270/- to the value of closing stock on account of this apportionment of
electricity expenses. Apart from that, he also held that 50% of Directors'
remuneration was also to be considered as part of wages for the purpose of
inclusion in the value of closing stock. As against the total remuneration paid to
the Directors during the year at Rs. 9 lac, the A.O. further attributed a sum of
Rs. 4.5 lac to the manufacturing expenses. This resulted into an addition of
Rs.10,62,270/-. The learned CIT(A) ordered for the deletion of this addition.
18. After considering the rival submission and perusing the relevant material
on record, it is observed that the assessee was consistently apportioning
electricity expenses between factory premises and office building in the ratio of
number of employees in the works and in administration office. This practice
adopted by the assessee, has not been disturbed by the Revenue in the past. Once
a particular accounting practice is consistently followed, then there is no
rationale in disturbing the same. The finding of the learned CIT(A) in this
regard, has remained controverted by the ld. DR. The Directors' remuneration is
an item of administrative expenses and cannot be considered as a part of trading
account so as to qualify as a direct expense for the production of expenses. It is
but natural that only the expenses in the trading account, which are otherwise
direct in nature, can be considered in valuing the closing stock. No expense of
the administration nature, which falls in the Profit and loss account can be
considered for valuing the closing stock. In our considered opinion, there is no
infirmity in the impugned order deleting this addition. Even if we go with the
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viewpoint of Revenue that the apportionment of the electricity expenses should
be made in the ratio of 95:5 and 50% of Director's remuneration be considered
towards valuation of closing stock then the opening stock would also call for
revaluation on the same pattern. Not only this, even the profitability of the
succeeding year would also be affected because the valuation of the closing
stock for this year would become the valuation of opening stock for the
succeeding year. Be that as it may, since the assessee has consistently followed
this manner of apportionment of expense for the purposes of valuing the closing
stock in the past, which has not been disputed by the AO, we see no reason to
interfere with the impugned order in sustaining the consistent practice. This
ground is not allowed.
19. Ground No.5 of the Revenue's appeal is against the deletion of addition of
Rs.1,42,141/- made by the AO on account of Voluntary Retirement Scheme
(VRS) expenses. The assessee in its cross objection is aggrieved against the
sustenance of disallowance of Rs.1,06,210/- out of VRS expenses. The facts
apropos this issue are that the assessee claimed deduction for a sum of
Rs.7,66,108/- on account of VRS expenses. This comprised of ¼ of
Rs.4,24,838/- pertaining to the year 2000-01 and 1/5 of Rs.30,22,473/- and
Rs.2,77,019/- pertaining to the years 2001-02 and 2002-03. The AO observed
that the deduction for the year 2000-01 was not available since section 35DDA
was inserted w.e.f. 1.4.2001. As regards the remaining amounts, the AO
principally granting deduction at 1/5th , did not find the amount of VR expense
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matching. He, therefore, made addition for a sum of Rs.2,48,351/- comprising
Rs.1,06,210/- for the year 2000-01 and a sum of Rs.1,42,141/- for the years
2001-02 and 2002-03 because of difference in the amount of VR expenses. The
ld. CIT(A) concurred with the AO as regards the non-availability of deduction
for the VR expenses incurred for the year 2000-01 against which the assessee
has come up in appeal before us. As regards the remaining amount, the ld.
CIT(A) observed that the amount of VR was improperly taken by the AO which
should have been as claimed by the assessee. He, therefore, deleted the addition
of Rs.1,42,141/-, against which the Revenue has come up in appeal.
20. After considering the rival submissions and perusing the relevant material
on record, we find from the remand report that the AO has not disputed the
amount of VR expenses for the two years in respect of which the ld.CIT(A)
granted the relief. The AO simply stood by the action taken by him in the
assessment order. To view of the ld. CIT(A) in allowing the relief is, therefore,
upheld. As regards the other amount, we find that section 35DDA came to be
inserted by the Finance Act, 2001 w.e.f. 1.4.2001 providing deduction under
VRS @ 1/5 of the amount so paid in five equal installments. The claim of the
assessee for making deduction for a sum of Rs.1,06,210/- in respect of the year
2000-01 is clearly impermissible in view of section 35DDA coming into force
later on. Such expenditure assuming the character of prior period expenses for
the year in question for which the liability got crystalised and stood discharged
in the earlier year cannot be allowed as deduction in the current year. We,
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therefore, uphold the impugned order on this score. Both the cross grounds are
dismissed.
21. Ground No.6 of the Revenue's appeal is against the deletion of addition of
Rs.2,36,150/- on account of unascertained liability in the form of warranty
claimed. The assessee claimed deduction for a sum of Rs.2,36,150/- as
`provision for warranty claim.' In the absence of any documentary evidence
filed before the AO, the said amount was disallowed. The ld.CIT(A) deleted
this addition by observing in para 35 of the impugned order that it was not a
provision for warranty, but, the warranty expenses actually incurred as per the
vouchers and books of account.
22. After considering the rival submissions and perusing the relevant material
on record, we find that page 254 of the assessee's paper book is a copy of
warranty claim account. From this account, it is apparent that the last item is a
debit for a sum of Rs.2,36,150/- and, in the narration column, it has been
mentioned `being the provision'. In view of this factual scenario, it becomes
abundantly clear that the ld. CIT(A) erred in deleting this addition by
considering the amount of Rs.2.36 lac as warranty expenses actually incurred
and not as a provision. The view taken by the ld. CIT(A) is, therefore, not
sustainable.
23. It is relevant to mention that the Hon'ble Supreme Court in the case of
Rotork Controls India (P) Ltd. Vs. CIT (2009) 314 ITR 62 (SC), has held that
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the provision for warranty claims is deductible if such provision is made on a
scientific basis. There is no material available on record to demonstrate as to
how this provision of Rs.2.36 lac was created. Under such circumstances, we
set aside the impugned order and remit the matter to the file of AO for giving an
opportunity to the assessee for placing on record the basis on which this amount
of provision for warranty claims was created. If such amount of provision is
found to be based on a scientific way, then, the deduction should be allowed. In
the otherwise case, the excess amount over the appropriate amount of provision,
should be disallowed.
24. Ground No.7 is against the deletion of addition of Rs.3,70,335/-. The
assessee claimed deduction for a sum of Rs.4,93,777/- under the head `Insurance
expenses.' On perusal of details of insurance expenses, it was noticed that the
assessee paid a sum of Rs.4.93 lac to Bajaj Alliance and General Insurance
Company Ltd., for the period 1.1.05 to 31.12.05. By treating the amount
relatable to the year in question for the first three months at Rs.1,23,442/-, the
AO disallowed the remaining amount of Rs.3.70 lac. The ld. CIT(A) accepted
the assessee's claim that a sum of Rs.4.93 lac was not claimed as deduction by
the assessee. He, therefore, deleted the addition in entirety.
25. After considering the rival submissions and perusing the relevant material
on record, it is observed from the assessment order that the assessee did make a
claim for deduction of insurance expenses. Not only that, the assessee also
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submitted before the AO, vide its reply dated 23.2.07 that the amount was paid
to Bajaj Allianz and General Insurance Company Ltd., for a Standard Fire
Policy for the calendar year 2005. When the facts are crystal clear that the
assessee did make a claim for deduction of Rs.4.93 lac, the view point of the ld.
CIT(A) cannot be accepted unless the assessee shows that no deduction was
claimed for the amount disallowed. Since necessary details were not instantly
available with the ld.AR, we are of the considered opinion that it would be in the
fitness of things if the impugned order on this issue is set aside and the matter is
restored to the file of AO for a fresh determination. If it is found that the
assessee claimed deduction for the disallowed portion of insurance expenses
then the same representing pre-paid expenses cannot be allowed as deduction in
the instant year.
26. Ground No.8 of the Revenue's appeal is against the deletion of addition of
Rs.30,09,023/- u/s 40(a)(ia) of the Act. On going through the details of freight
and forwarding expenses, the AO found that no deduction of tax at source was
made in respect of the payments made to the following parties:-
M/s B&R Transport Corporation 62710
M/s BGFC Movers (I) P. Ltd. 250214
M/s Golden Cargo Movers 49100
M/s Kerala Transport Co. 170578
M/s New India Roadways 85552
M/s Panal Pina World Transport 28700
M/s Parmoni Goods Carrier 33920
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M/s Saajan Transport Co. 37261
M/s Sachdeva Roadlines Pvt. Ltd. 1270580
M/s Southern Eastern Roadways 72790
M/s Southern Carrying Corporation 616335
M/s Western Roadlines P. Ltd. 75277
2753023
27. Apart from that, it was also noticed that the assessee paid a sum of
Rs.2.56 lac to M/s Millennium Offset Works for printing of various items. It
was opined that the tax was required to be deducted from this amount as it was a
printing contract. The ld. CIT(A) deleted the addition.
28. Having heard both the sides and perused the relevant material on record
along with the remand report of the AO, it can be seen from pages 490 onwards
of the paper book that the assessee deducted tax at source from all the payments
made by it to the above parties on account of freight and forwarding. Item-wise
detail of the parties to whom freight was paid along with the amount paid, date
on which the amount was paid/credited, section and rate at which the amount of
tax was deducted and the dates on which such TDS was deposited in the
exchequer, are available. These item-wise details run from page 492 upto 552 of
the paper book. Page 554 is a certificate issued by the assessee in Form No.16A
to M/s BGFC Movers India Pvt. Ltd., for deduction of tax at source on the
freight payments made to it. Page 556 is a certificate in Form No.16A issued to
M/s Parnami Goods Carriers Pvt. Ltd. Page 558 is a copy of certificate in Form
No.16A issued to M/s New India Roadways. In the like manner, TDS
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certificates have been issued in respect of the parties for which the AO has made
out a case that no deduction of tax at source was made. When all these details
were forwarded to the AO in remand proceedings, he conspicuously remained
silent. In view of the fact that the assessee did deduct tax at source on the
freight payments made to the above parties and such tax was duly deposited in
the exchequer, we are of the considered opinion that the provisions of section
40(a)(ia) are not triggered.
29. As regards non-deduction of tax at source on the amount of printing and
stationery, we find that the details of such expenses are available on pages 376
onwards of the paper book. From such details, it can be seen that these are for
purchase of printing and stationery and there is nothing like any works contract
having been carried out by the supplier. These are small amounts comprising of
purchase of papers for balance sheet, material dispatch register, tags, excise
challans and envelopes, etc. The definition of `works' under section 194C does
not include such printing and stationery expenses. We, therefore, hold that the
ld. CIT(A) was justified in deleting this addition.
30. Ground No.9 is against the deletion of addition of Rs.23,889/- on account
of cessation of liability u/s 41 of the Act. The assessee had shown sundry
creditors amounting to Rs.3.99 crore. On perusal of details of such creditors, the
AO observed that the amounts payable to seven parties totaling to Rs.23,889/-
were more than three years old. Invoking the provisions of section 41, the AO
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considered this amount as cessation of liability and made the addition. The ld.
CIT(A) ordered for the deletion of this addition.
31. After considering the rival submissions and perusing the relevant material
on record, it is noticed from the details of such amounts that some of them have
been actually written back by the assessee in the succeeding year and the other
amounts were existing liabilities not having ceased to exist. Merely because the
creditor gets more than three years old, does not ipso facto obliterate the liability
in itself. So long as the liability is payable, it cannot be considered as income.
Taking into consideration the entirety of facts and circumstances of this issue,
we are satisfied that the ld. CIT(A) was right in deleting the addition.
32. Ground No.10 is against the deletion of addition of Rs.15,36,144/- on
account of foreign travel expenses. On perusal of total travelling expenses
incurred by the assessee, the AO observed that a sum of Rs.15.36 lac pertained
to the foreign travelling expenses incurred by the directors. Out of this total, a
sum of Rs.3.22 lac represented air tickets and Rs.12.13 lac payment of hotel
bills and boarding and lodging expenses. In the absence of sufficient details
provided by the assessee, the AO made addition of Rs.15.36 lac. The ld. CIT(A)
deleted such addition.
33. After considering the rival submissions and perusing the relevant material
on record, it is observed that the foreign travelling expenses were incurred by
the directors of the company who visited several countries where the company
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was making exports for last couple of years. In support of the deduction for
expenses, the assessee also furnished copies of e-mails exchanged with the
customers abroad. The AO in the remand report chose not to adversely comment
on this evidence. In view of these facts, it is clear that such foreign travelling
expenses were incurred for the purpose of the assessee's business and there is no
warrant for making any disallowance. The impugned order is upheld on this
score.
34. The next ground of the Revenue's appeal is against the deletion of
addition of Rs.2,84,193/- out of vehicle running and maintenance expenses @
20% for non-business purpose. The ld.CIT(A) ordered for the deletion of the
addition.
35. After considering the rival submissions and perusing the relevant material
on record, we find that the Delhi Bench of the Tribunal in DCIT vs. Haryana
Oxygen Ltd. (2001) 76 ITD 32 (Del), has held that the company is a separate
legal entity distinct from its directors and the use of vehicles by the directors
cannot be characterized as user for non-business purpose and, hence, no addition
can be made. The Hon'ble Gujarat High Court in Sayaji Iron and Engineering
Company vs. CIT (2002) 253 ITR 749 (Guj), has held that there cannot be any
non-business user in so far as a company assessee is concerned. In view of the
above discussion, we find that the ld. CIT(A) has taken an unimpeachable view
in deleting disallowance of 20% of vehicle running and maintenance expenses
for non-business purpose. This ground is not allowed.
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36. Ground No.12 is against the deletion of addition of Rs.1,29,319/- made on
account of telephone expenses. The AO disallowed 20% of telephone expenses
by treating it as for non-business purpose. The ld. CIT(A) deleted the addition.
In view of the discussion made in respect of the immediately preceding ground,
we are satisfied that no infirmity can be found in the ld. CIT(A)'s order in
deleting this addition. Following the precedents noted above, we uphold the
impugned order on this score.
37. Ground No.13 is against the deletion of addition made by the AO at the
rate of 20% of entertainment expenses. The AO made this addition by noticing
that the total entertainment expenses were incurred for meals in hotels and it was
not shown that there was any business purpose in incurring such expenses. The
ld. CIT(A) deleted this addition.
38. After considering the rival submissions and perusing the relevant material
on record, we find that page Nos. 350-351 contain the detail of entertainment
expenses. All the payments have been made through cheques and the assessee
has mentioned the name and designation of the customer who was taken for
meals, etc. In our considered opinion, there can be no reason for sustaining this
disallowance. This ground is not allowed.
39. Ground No.14 is against the deletion of addition of Rs.65,734/- on
account of demurrage charges. During the course of assessment proceedings, it
was noticed that the assessee debited this sum as demurrage charges. By
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treating this amount as penal in nature, the AO made disallowance for the same.
The ld. CIT(A) deleted the disallowance.
40. After considering the rival submissions and perusing the relevant material
on record, we find that this amount represents excess freight charged by a
customer M/s Mid West Truck Auto Parts, which was in turn, recovered by
bank. Complete evidence and explanation in this regard was filed before the AO
as well, who did not offer any adverse comment on the same. As this amount is
nothing, but, excess freight charges, it cannot be treated as penal in nature
warranting any disallowance in terms of Explanation 1 to section 37(1) of the
Act. This ground fails.
41. The last ground of this appeal is against the deletion of addition of
Rs.1,29,300/- on account of sales and business promotion expenses. The AO
noticed that the sales and promotion expenses included a sum of Rs.1.95 lac
towards Sale promotions, Rs.8,855/- towards Business promotion and
Rs.82,227/- towards Gifts and articles. On perusal of the details filed by the
assessee in this regard, the AO noticed that the first and second items were in the
nature of gifts, lunch, dinner and entertainment incurred mostly in cash. One-
fourth of such expenses was disallowed. As regards the third item, he took it as
representing donations/kanyadans to the tune of Rs.32,654/- and, a further sum
of Rs.45,450/- towards gift of gold set. These two amounts totaling to
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Rs.78,104/- were also added. This resulted into a total addition of Rs.1,29,300/-.
The ld. CIT(A) deleted this addition.
42. Having heard the rival submissions and perused the relevant material on
record, we find from pages 353A onwards of the paper book that the assessee
furnished details of such expenses before the AO vide its letter dated 22.11.07.
Gold items were distributed on the occasion of Diwali festival to its customers
and complete details about the name and designation of the persons to whom
such gifts were given, has been provided in the paper book. Invoices for the
purchase of such gold items are also available on record. In so far as shaguns
are concerned, the assessee is in the practice of giving shaguns on the occasion
of girl marriage in the family of its employees. On random basis, a receipt from
the recipient along with the copy of the wedding card has also been made
available. In view of these details filed before the authorities below, we are of
the considered opinion that the ld. CIT(A) was justified in deleting the addition.
43. In the result, the appeal of the Revenue is partly allowed for statistical
purposes and CO of the assessee is dismissed.
The order pronounced in the open court on 19.01.2015.
Sd/- Sd/-
[A.T. VARKEY] [R.S. SYAL]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated, 19th January, 2015.
dk
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Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT (A)
5. DR, ITAT
AR, ITAT, NEW DELHI.
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