TMI Blog2020 (3) TMI 210X X X X Extracts X X X X X X X X Extracts X X X X ..... reject the books of account u/s 145 (3), the question of estimating the gross profit @ 5% of the gross receipts does not arise. AO has not recorded any categoric finding that the accounts produced by the assessee were defective or incomplete rather rejected the same eon the hyper-technical ground that certain details have not been brought on record. AO by recklessly rejecting the books of account proceeded to estimate the income by applying profit @ 5% of the gross receipt at ₹ 76,94,395/- whereas assessee company has already assessed its income from business at ₹ 1,03,37,625/- (before depreciation). So, AO for the reason best known to him has assessed the income of the assessee substantially less than the returned income. CIT (A) has rightly and validly accepted the books of account and set aside the estimation of gross profit @ 5% and proceeded to examine the sustainability of the various allowances claimed by the assessee independently. Allowable expenditure u/s 37(1) on its new project - HELD THAT:- Bare perusal of the assessment order goes to prove that except for repeating the language of section 37(1) of the Act, AO has not written a word as to how ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of supplier to whom payment had otherwise been made through banking channel, no addition can be made on this account. So, we are of the considered view that the addition is not sustainable and ordered to be deleted, however subject to verification by the AO. Computation of carry forward losses and unabsorbed depreciation qua the year under assessments by the AO and confirmed by the ld. CIT (A) on the ground that the same has not been correctly computed - HELD THAT:- Since it is a factual mistake pointed out by the ld. AR for the assessee, AO is directed to correctly compute the carry forward losses and unabsorbed depreciation to arrive at the logical assessment. Depreciation on Innova car - HELD THAT:- When the books of account have been accepted by the ld. CIT (A) and order of ld. CIT (A) has held to have been sustainable by the Bench as per findings in the preceding paras, depreciation cannot be disallowed because vehicle running and its maintenance expenses have been duly charged to the accounts. Moreover, when vehicle is proved to be purchased from the company s funds, depreciation cannot be disallowed merely on the basis of surmises that it was not used for the bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bed Depreciation. 6. THAT in the facts and circumstances of the case, the Learned CIT(A) erred in confirming the order of A.O. who erred in not allowing MAT Credit paid in the earlier years. ITA No.3473/Del./2015 FOR AY : 2010-11 (Assessee s Appeal) 1. THAT in the facts and circumstances of the case, the Learned CIT(A) uphold the addition made by A.O. that rent paid was excessive to the extent of ₹ 6,17,580/- and disallowable u/s 40A(2)(b) of the Income Tax Act. 2. THAT in the facts and circumstances of the case, the Learned CIT(A) erred in confirming the order of A.O. who erred in making an addition on account of depreciation on car of ₹ 10,04,258/-. 3. THAT in the facts and circumstances of the case, the Learned CIT(A) erred in confirming the disallowance on account of interest paid to NBFC, M/s Kotak Mahindra Primus Ltd. of ₹ 3,97,817/-. 4. THAT in the facts and circumstances of the case, the Learned CIT(A) erred in confirming the order of A.O. who erred in not adjusting the Brought Forward Losses/Unabsorbed Depreciation from earlier years. 5. THAT in the facts and circumstances of the case, the Learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee has not furnished any details/evidences to prove that any such amount was charged from Edexcel, UK. 6. On the facts and circumstances of the case, the Ld. CIT(A) has erred on facts and in law in holding that the expenditure of ₹ 2,26,14,880/- allocated to project Edexcel, UK is revenue in nature ignoring the fact that when the amount so allocated was capitalized as per Companies Act, 1956, it is not allowable as revenue expenditure under Income Tax Act, 1961. ITA No.3574/Kol./2015 AY: 2010-11 (Revenue s appeal) 1. On the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law, in not upholding the decision of AO rejecting the book results u/s 145(3) of the I.T. Act in spite of the fact that the books of accounts are not complete. 2. On the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law, in not upholding the decision of AO rejecting the book results u/s 145(3) of the I.T. Act in spite of the fact that there were unverifiable sundry creditors. 3. On the facts and in the circumstances of the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d unabsorbed depreciation. 7. Assessee carried the matter before the ld. CIT (A) by way of filing the appeals who has partly allowed the appeals for AYs 2009-10 2010-11. Feeling aggrieved by the orders passed by the ld. CIT (A), both the assessee as well as the Revenue have come up before the Tribunal by way of filing the present cross appeals. 8. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case. 9. Undisputedly, the ld. CIT (A) has annulled the order of the AO rejecting the books of account u/s 145 (3) of the Act and estimating the profit @ 5% of the gross receipts, which action of the ld. CIT (A) has been challenged by the Revenue for both the AYs 2009-10 2010-11. GROUNDS NO.1, 2 3 OF REVENUE S APPEAL FOR AY 2009-10 GROUNDS NO.1, 2, 3 4 OF REVENUE S APPEAL FOR AY 2010-11 10. Perusal of para 3.2 of the assessment order goes to show that the AO proceeded to reject the books of account u/s 145 (3) of the Act on the ground that despite repeated opportu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ADDL ITO V Ponkunnam Traders (1976) 102 ITR 366 (Ker), confirmed the order of the Single Judge, who had quashed such additions ,where opportunity not been provided to the appellant. .. 4.5 In the present case the A.O rejected the books of account without specifying as to whether any of the above three conditions was satisfied. Furthermore, instead of passing order u/s 144 of the Income Tax Act, the A.O, even after rejecting the books of account, passed the order u/s 143(3) which is fallacious. If the A.O wanted to reject the books of account he should have given certain specific instances which could have proved that the accounts of the appellant are incorrect/incomplete. Besides, since the appellant company has been regularly following mercantile system of accounting, it has not violated provision of Section 145(1) of the Income Tax Act. As none of the conditions for rejection of books, mentioned in section 145 were satisfied, I hold that A.O should not have rejected the books of account in the appellant's case by making sweeping remarks and without examining voluminous documents submitted by the appellant during the course of assessment proceedings. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereas assessee company has already assessed its income from business at ₹ 1,03,37,625/- (before depreciation). So, AO for the reason best known to him has assessed the income of the assessee substantially less than the returned income. 16. So, in these circumstances, we are of the considered view that ld. CIT (A) has rightly and validly accepted the books of account and set aside the estimation of gross profit @ 5% and proceeded to examine the sustainability of the various allowances claimed by the assessee independently. So, Grounds No.1, 2 3 of Revenue s appeal for AY 2009-10 and Grounds No.1, 2, 3 4 of Revenue s appeal for AY 2010-11 are determined against the Revenue. GROUNDS NO.4, 5 6 OF REVENUE S APPEAL FOR AY 2009-10 17. The assessee claimed an amount of ₹ 2,26,14,880/- being expenditure on its new project (Project EDEXCEL ). AO after considering the reply filed by the assessee disallowed the expenses of ₹ 2,26,14,880/- u/s 37 (1) of the Act on the ground that the assessee has failed to prove incurring of such expenses. However, ld. CIT (A) deleted these expenses. 18. For proceeding further, we would like to extract the expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made separate addition of this amount of ₹ 2,26,14,880/- which amounts to double disallowance. Ld. DR for the Revenue, however, relied upon the order passed by the AO. 22. AO has primarily disallowed these expenses on the ground that the assessee has failed to prove incurring of such expenses wholly and exclusively for the purpose of business u/s 37(1) of the Act and also observed that it is not admissible to the assessee as it has claimed such expenditure as capital expenditure for its new project. 23. When it is an undisputed fact that assessee is into providing logistic services for testing establishments holding tests in India and its major client is IELTS Australia rendering services to Project EDEXCEL for holding tests on their behalf in India by spreading its infrastructure at different rented locations and by having extra staff, it is certainly a business expenditure. Moreover, assessee has brought on record the fact that :- EDEXCEL is a organization based in the UK and has been accredited to award O and A level certificates of Cambridge University. Several schools in India have a system to test their students in the aforesaid O and A level in add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the true nature of the transaction and whether in fact it has resulted in profit or loss to the assessee. 28. So, in view of the matter, we are of the considered view that when identical issue has already been decided by the Revenue in favour of the assessee in 2008-09 and such expenses have been accepted as revenue expenses in AY 2010-11 also, the rule of consistency has to be followed by the Revenue particularly when there is no change in the business model and facts and circumstances of the case. So, aforesaid expenditure incurred on salary, hiring premises on rent, business promotion expenses, etc. have been rightly treated as revenue in nature by the ld. CIT (A) with which no new assets have came into existence, hence no ground is made out to interfere in the findings returned by the ld. CIT (A), consequently Grounds No.4, 5 6 of Revenue s appeal for AY 2009-10 are determined against the Revenue. GROUND NO.1 OF ASSESSEE S APPEAL FOR AYs 2009-10 2010-11 29. AO made addition of ₹ 55,58,220/- EACH for AYs 2009- 10 2010-11 qua rental paid by the assessee regarding premises No.304, 3rd Floor, Park Centre, Sector 30, Gurgaon having covered are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in FBT return which had been accepted by the AO and as such no addition can be made which would amount to double disallowance. When the disallowance has already been made by the assessee company in FBT return which has been accepted by the AO no separate addition can be made which would amount to double disallowance. So, we hereby delete this addition of ₹ 5,47,622/- sustained by the ld. CIT (A) for AY 2009-10, however subject to verification by the AO qua the facts brought on record by the assessee. Hence, ground no.2 in assessee s appeal for AY 2009-10 is determined in favour of the assessee. GROUNDS NO.3 4 OF ASSESSEE S APPEAL FOR AY 2009-10 34. Ld. CIT (A) confirmed the disallowance of ₹ 3,53,626/- and ₹ 4,88,497/- made by the AO on account of outstanding balance of sundry creditors, namely, Indoor Exteriors and Phone.in Baroda respectively. Ld. AR for the assessee contended that both these creditors relate to capital expenditure qua which depreciation has been duly claimed. It is also contended by the ld. AR for the assessee that in case of addition of ₹ 3,53,626/- qua Phone.in Baroda dispute arisen and ultimately outstanding ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd no.6 of AYs 2009-10 and 2010-11 of assessee s appeal are allowed for statistical purposes. GROUND NO.2 OF ASSESSEE S APPEAL FOR AY 2010-11 38. Ld. CIT(A) confirmed the addition made by the AO on account of depreciation on Innova car to the tune of ₹ 10,04,258. Undisputedly, assessee company has purchased 8 seater Innova car from the company funds but registered in the name of its Director, Shri Sanjay Malaviya. AO as well as CIT(A) have disallowed the depreciation claimed by the assessee company on the ground that assessee company has failed to prove that car registered in the name of Director of the company was actually used in the company s business. 39. These findings when attributed to AO are correct to the extent that the AO has rejected the books of account. However, when the books of account have been accepted by the ld. CIT (A) and order of ld. CIT (A) has held to have been sustainable by the Bench as per findings in the preceding paras, depreciation cannot be disallowed because vehicle running and its maintenance expenses have been duly charged to the accounts. Moreover, when vehicle is proved to be purchased from the company s funds, depreci ..... X X X X Extracts X X X X X X X X Extracts X X X X
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