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2017 (8) TMI 607 - AT - Income TaxDisallow the claim of deduction u/s 80IA - non filing of audit report in Form 10CCB before the due date of filing of return - mandatory requirement of filing of Audit Report - Held that:- Admittedly, in support of claim of deduction under section 80IA, the audit report in prescribed Form 10CCB has been filed by the assessee company during the course of assessment proceedings. The Hon’ble Supreme Court in CIT v. G.M. Knitting Industries (P) Ltd. (2015 (11) TMI 397 - SUPREME COURT) dismissed the appeal of Revenue and confirmed the view taken by Madras High Court in case of CIT v. AKS Alloys (P.) Ltd. [2011 (12) TMI 39 - MADRAS HIGH COURT] holding that “Even though necessary certificate in Form 10CCB along with return of income had not been filed but same was filed before final order of the assessment was made, the assessee was entitled to claim deduction under section 80-IB.” In light of the above, we agree with the contention of the ld AR that while filing of the audit report is mandatory, the further condition that it should be filed with the return of income is directory in nature and so long as the audit report has been filed during the course of assessment proceedings, substantial compliance has been made. In the result, ground no. 1 of the assessee’s appeal is allowed. Cash payments in violation of provisions of section 40A(3) - Held that:- In the present case, the assessee company has hired the services of transport agency, it thus incurs a liability and owe payment to such transport agency for availing its services. It can either make payment through account payee cheque or bank draft or in cash. Where it makes payment in cash, it is hit by provisions of section 40A(3). The payment to a truck driver is thus a payment to and on behalf of the transport agency and is not a payment to the truck driver in his individual capacity as the assessee has availed the services of the transport agency to transport its goods and not that of the truck driver simpliciter. Therefore, where the payment is made to the agent of the payer, Rule 6DD comes to the rescue and not otherwise. The truck drivers are not the agent of the assessee company and thus not covered under the exception carved out in Rule 6DD. Given the current provisions in section 40A(3) read with Rule 6DD, in the instant case, the payments to individual transport agencies exceed the threshold of ₹ 35,000 and thus rightly disallowed by the AO - Decided against assessee Addition u/s 14A - disallowance expenditure incurred in relation to earning exempt income in accordance with Rule 8D - Held that:- CIT(A) accepted that no disallowance is to be made out of the interest expenses but has wrongly confirmed the disallowance out of administrative expenses at ₹ 13,414/- as against ₹ 1,487/- disallowed by AO. Therefore, even if order of Ld. CIT(A) is upheld, the disallowance be directed to be restricted at ₹ 1,487/- as against ₹ 13,414/- incorrectly mentioned by the Ld. CIT(A). After hearing both the parties, disallowance of administrative expenses is restricted to ₹ 1,487. In the result, the ground is partly allowed. Rejection of method of valuation of stock - identification of stock - defective stock identification - Held that:- As find that the defective stock has been referred to by the assessee as a stock which is not of best quality, is slow moving and has got accumulated at the end of the year and which is determined based on physical verification. It is thus a stock which is identifiable and not a dead stock but a slow moving stock in the sense that it takes longer to dispose it off and the fact that it has been disposed off subsequently at a particular value. The onus is thus on the assessee to demonstrate the position of defective stock and movement (sale) thereof over the past years. Where through such movement of stock, it can be demonstrated that the trend of defective stock throws a percentage of 25% or 50% of specified goods as defective, the same can then be accepted as a reliable and robust basis to help determination of relevant trend for identification of defective stocks. As we have held above, the assessee has to demonstrate through facts of the instant year that such a trend percentage of defective stock can be applied for the year under consideration taking into consideration the position of opening stock, purchases, sale and closing stock. There is however nothing on record to suggest that the assessee has discharged this initial onus placed on it. In the result, we are setting aside the matter to the file of the ld CIT(A) to examine the matter afresh as per law after providing appropriate opportunity to the assessee. In the result, the ground of the revenue is allowed for statistical purposes.
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