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2022 (10) TMI 861
Classification of services - rate of GST - works contract service provided to Malabar Cancer Centre - Government Entity or not - to be billed at 12% GST or to be billed at 18% GST? - HELD THAT:- The concessional rate of GST prescribed under the above entry is applicable to the supply of specified work contract services provided to Central Government or State Government or Local Authority or Governmental Authority or Government entity. The specified works contract services are supply by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of (i) a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession or (ii) a structure meant predominantly for use as an educational, a clinical, or an art or cultural establishment or (iii) a residential complex predominantly meant for self-use or the use of their employees or other persons specified in paragraph 3 of the Schedule III of the CGST Act - the conditions to be fulfilled for a supply to be eligible for the concessional rate under the above entry are; (i) the supply must be a composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017; (ii) the supply must satisfy any of the specified descriptions and (iii) the supply must be provided to the Central Government or State Government or Local Authority or Governmental Authority or Government entity.
Whether the service rendered by the applicant falls under the category of works contract service as per the CGST Act? - HELD THAT:- The term works contract under GST is restricted to contract for construction, fabrication etc of any immovable property. The facts submitted by the applicant reveals that the applicant had entered into an agreement with Malabar Cancer Centre for the construction and extension of site and building. Hence the service rendered by the applicant falls under the ambit of definition of works contract under the CGST Act.
Whether the supply of works contract services fall under any of the specified descriptions mentioned in the above entry? - HELD THAT:- The term "clinical establishment" is defined in Para 2 (s) of Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017 as "clinical establishment" means a hospital, nursing home, clinic, sanatorium or any other institution by, whatever name called, that offers services or facilities requiring diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognized system of medicines in India or a place established as an independent entity or a part of an establishment to carry out diagnostic or investigative services of diseases.
Whether Malabar Cancer Centre is a governmental authority or a government entity? - HELD THAT:- Malabar Cancer Centre is a society established by the State Government with 100 per cent participation by way of equity or control, to carry out the function of public health a function entrusted to a municipality as well as a panchayat under Article 243W and Article 243G respectively of the Constitution and accordingly falls within the definition of governmental authority under Para 4 (ix) of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017.
The services rendered by the applicant to Malabar Cancer Centre as detailed in the application are eligible for the concessional rate of tax of 12% prescribed in the entry at SI No. 3(vi) of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 as Malabar Cancer Centre is a governmental authority as per definition of governmental authority in Para 4 (ix) of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017.
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2022 (10) TMI 860
Classification of supply - pure service or work contract services - geotechnical investigation and preparation of foundation recommendation (soil report preparation) for civil works or infrastructure construction works - preparation of detailed project report (DPR) related to civil works/infrastructure construction works - architectural and engineering design for civil works/infrastructure works - project management services for civil works or infrastructure construction works - HELD THAT:- It is revealed that the services rendered by the applicant are geotechnical investigation and preparation of foundation recommendation (soil report preparation), architectural and engineering design, preparation of detailed project report (DPR), project management services for civil works or infrastructure construction works - the activity of geotechnical investigation and preparation of foundation recommendation (soil report preparation), preparation of detailed project report, architectural and engineering design and project management services for civil works or infrastructure construction works undertaken by the applicant are services that are appropriately classifiable under Heading 9983 - Other professional, technical and business services of the Scheme of Classification of Services notified as Annexure to Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 and is liable to GST at the rate of 18% as per entry at SI No. 21 (ii) of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017.
Whether the services rendered by the applicant to Rebuild Kerala, Kerala State Public Works Department and HLL Infratech Services Ltd are eligible for exemption under entry at SI. No. 3 of Notification No. 12/2017 Central Tax (Rate) dated 28-06-2017 as claimed by them? - HELD THAT:- The applicant is rendering services to Rebuild Kerala which is an initiative of the Government of Kerala to build sustainable and resilient roads and allied structures that are scientifically designed for efficiency of transport and accordingly the services rendered to Rebuild Kerala are to the Government of Kerala itself - As stated by the applicant the services rendered by them are in relation to the construction of bridges, roads, schools etc. and hence are activities in relation to any function entrusted to a Panchayat under Article 243 G of the Constitution or to a Municipality under Article 243 W of the Constitution.
The services supplied by the applicant to Rebuild Kerala and Public Works Department are eligible for exemption as per the entry at SI. No. 3 of Notification No. 12/2017 Central Tax (Rate) dated 28-06-2017 being pure services provided to State Government by way of any activity in relation to any function entrusted to a Panchayat or Municipality under Article 243 G or Article 243 W of the Constitution.
M/s HLL Infratech Services Ltd is a Public Sector Undertaking under the administrative control of the Ministry of Health and Family Welfare, Government of India and as such, they are neither Central Government nor a State Government. Hence the services supplied by the applicant to M/s HLL Infratech Services Ltd are not eligible for exemption under entry at SI. No. 3 of Notification No.12/2017 Central Tax (Rate) dated 28-06-2017 as exemption under the entry is available only for the specified services provided to the Central Government or State Government or Union territory or local authority - the services rendered by the applicant in respect of the projects in question Nos. 3.1 to 3.4 above to Rebuild Kerala and Public Works Department are covered under the exemption under SI No. 3 of the Notification No.12/2017 Central Tax (Rate) dated 28-06-2017 and the services rendered by the applicant to M/S HLL Infratech Services Ltd are not covered under the said exemption.
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2022 (10) TMI 859
Levy of GST - marine engines, being the part of a fishing vessel - applicability of Entry Serial No.252 of Schedule I of Notification No.1/2017 CT(R) dated 28.06.2017 & State Notification No. S.R.O. 360/2017 - HELD THAT:- In order to classify the products, the provisions of Notification No 01/2017 Central Tax (Rate) dated 28.06.2017 are to be verified. As per entry at SI No. 114 of Schedule IV of Notification No. 01/2017 Central Tax (Rate) dated 28.06.2017, the marine engines imported by the applicant are classified under Customs Tariff Heading 8407 21 00 -Outboard motors - Marine Propulsion engines - Spark-ignition reciprocating or rotary internal combustion piston engines and attracts GST at the rate of 28%. Fishing vessels, factory ships and other vessels for processing or preserving fishery products fall under Customs Tariff Heading 8902 and are liable to GST at the rate of 5% as per SI No. 247 of Schedule I of Notification No. 01/2017 Central Tax (Rate) dated 28.06.2017. However, as per entry in SI No. 252 of Schedule I of Notification No. 01/2017 Central Tax (Rate) dated 28.06.2017 parts of goods of headings 8901, 8902, 8904, 8905, 8906, 8907 falling under any chapter of the Customs Tariff attracts GST at the rate of 5%. Therefore, if the Marine engines are supplied for use as part of a fishing vessel falling under Customs Tariff Heading 8902, then the marine engine as part of a fishing vessel will only attract GST at the rate of 5% as per the entry in SI No. 252 of Schedule I of Notification No. 01/2017 Central Tax (Rate) dated 28.06.2017.
As per entry in SI No. 252 of Schedule I of Notification No. 01/2017 Central Tax (Rate) dated 28.06.2017 it is notified that parts of goods of headings 8901, 8902, 8904, 8905, 8906, 8907 falling under any chapter of the Customs Tariff attracts GST at the rate of 5%. Therefore, if the marine engines are supplied for use as part of a fishing vessel falling under Customs Tariff Heading 8902, then the marine engine as part of a fishing vessel will only attract GST at the rate of 5%. as per entry at SI No. 252 of Schedule I of Notification No.01/2017 Central Tax (Rate) dated 28.06.2017. If it is supplied for use other than as parts of fishing vessels as stated, GST at the rate applicable under the respective Customs Tariff Headings in which they are classified will apply.
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2022 (10) TMI 858
Exemption from GST - Works contract - composite supply - annuity amount received is exempted or not as it contains both construction and maintenance parts (which are inseparable) as per entry No. 23A of the Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017 - eligibility for an early completion bonus as the construction is completed before the scheduled date - Whether this bonus will also be exempted as it is the part and parcel of the principal project?
HELD THAT:- As per the terms and conditions of the concession agreement, the applicant as the concessionaire is designing, constructing, operating and maintaining the roads under Phase 1 (A) of the KCRIP during the concession period and transferring it to the Government on completion of the concession period. The entire project is financed by the applicant and the cost of the construction, operation and maintenance is recovered by the applicant by way of bi-annual annuity payments as per the terms and conditions of the concession agreement for 15 years. On completion of the payment of the cost of construction and maintenance for 15 years through bi-annual annuity as fixed by the agreement, the road is transferred to the Government - it is evident that the services provided by the applicant as per the concession agreement are covered under the definition of works contract under Section 2 (119) of the CGST Act, 2019 and the bi-annual annuity received by the applicant as per the concession agreement can be considered as the consideration for the works contract services supplied by the applicant given the definition of “consideration” in Section 2 (31) of the CGST Act, 2017.
The service rendered by the applicant as per the concession agreement is a continuous supply of works contract services and the annuity is in sum and substance the consideration for the works contract services rendered. Since the cost of construction is initially financed by the applicant the applicant is granted a concession to operate and maintain the roads for 15 years during which the entire consideration is paid to the applicant and on completion of the concession period the road is transferred to the Government. Therefore, the transfer of goods involved in the execution of the works contract happens at the time of transfer of the roads to the Government as per the concession agreement and accordingly the completion of the work contract service takes place on the date of transfer of the roads to the Government - the supply is deemed to have been made on each annuity payment date to the extent covered by the payment of annuity and the applicant is liable to raise tax invoice as per provisions of sub -section (5) of Section 31 and pay GST on the annuity received by them on each annuity payment date by the due date prescribed as per provisions of Section 39 of the CGST Act, 2017.
Thus, the services rendered by the applicant as per the concession agreement are classifiable as works contract services falling under SAC 995421 and the annuity received by the applicant including the bonus for early completion of construction is the consideration for the works contract services rendered and the applicant is liable to pay GST at the rate of 12% on the annuity including bonus as per entry at S1 No. 3 (iv) of Notification No. 11/2017 - Central Tax Rate) dated 28.06.2017 as amended.
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2022 (10) TMI 857
Classification and applicable rate of GST - outboard motors pertaining to HS Code 8407 and its spare parts as per Entry in Schedule I, Sl. No. 252 of GST Act, 2017 dated 28.06.2017 - GST rate of 28% shown in Schedule IV Sl. No.114 is applicable for sales made by the applicant or not - applicability of clarification issued vide Circular No.52/26/2018-GST - HELD THAT:- The Outboard motors imported by the applicant are classified under Customs Tariff Heading 8407 21 00 - Outboard motors - Marine Propulsion engines - Spark-ignition reciprocating or rotary internal combustion piston engines and attract GST at the rate of 28% as per entry at Sl. No. 114 of Schedule IV of Notification No. 01/2017 Central Tax (Rate) dated 28.06.2017. Fishing vessels, factory ships, and other vessels for processing or preserving fishery products fall under Customs Tariff Heading 8902 and are liable to GST at the rate of 5% as per entry at Sl. No. 247 of Schedule I of Notification No. 01/2017 Central Tax (Rate) dated 28.06.2017. However, as per entry in Sl. No. 252 of Schedule I of Notification No. 01/2017 Central Tax (Rate) dated 28.06.2017 parts of goods of headings 8901, 8902, 8904, 8905, 8906, 8907 falling under any chapter of the Customs Tariff attracts GST at the rate of 5 %. Therefore, if the Outboard motors are supplied for use as part of a fishing vessel falling under Customs Tariff Heading 8902, then OBM as part of the fishing vessel will only attract GST at the rate of 5% as per the entry at Sl. No. 252 of Schedule I of Notification No. 01/2017 Central Tax (Rate) dated 28.06.2017.
Therefore, if the Outboard motors are supplied for use as part of a fishing vessel falling under Customs Tariff Heading 8902, then OBM as part of the fishing vessel will only attract GST at the rate of 5%. as per entry at Sl. No. 252 of Schedule I of Notification No.01/2017 Central Tax (Rate) dated 28.06.2017. If it is supplied for use other than as parts of goods of headings 8901, 8902, 8904, 8905, 8906 and 8907, GST at the rate applicable under the respective Customs Tariff Headings in which they are classified will apply.
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2022 (10) TMI 856
Scope of Advance Ruling application - Application for AR filed by the association on behalf of its members - Supply or not - portion of apartments constructed by Developers and allotted to the Land Owners as part of a joint development arrangement between the Developers and the Land Owners - allotment of apartments of Land Owners by the Developers as part of a joint development arrangement - value to be adopted for the purpose of computing GST liability - time of supply - rate of GST - HELD THAT:- In the instant case the questions raised by the applicant pertains to the GST liability of the activity undertaken by the developers; who are the members of the applicant; i.e., the applicability of GST on the supplies made by third persons and not in respect of any supply undertaken or proposed to be undertaken by the applicant - the provisions of the CGST Act governing advance ruling does not provide for an applicant to seek a ruling regarding the applicability of the provisions of the Act or the notification issued there under to a third person other than the applicant.
Admittedly, the applicant has preferred this application on behalf of the members of the applicant and hence the application is not in respect of any matter specified in Section 97 (2) of the CGST Act in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant. Hence this authority has no jurisdiction to issue ruling on the above question.
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2022 (10) TMI 855
Exemption u/s 11 / 10(23C)(vi) - Charitable activity u/s 2(15) - trust seeking approval as existed ‘solely’ for educational purposes - correct meaning of the term ‘solely’ in Section 10 (23C) (vi) which exempts income of “university or other educational institution existing solely for educational purposes and not for purposes of profit” - appellants were denied registration on the ground that they were not registered under the Andhra Pradesh Charitable and Hindu Religious Institutions and Endowments Act, 1987 (hereinafter, “A.P. Charities Act”) as condition precedent for grant of approval - HELD THAT:- Institutions existing ‘solely’ for profit - This court is of the opinion that the interpretation adopted by the judgments in American Hotel [2008 (5) TMI 17 - SUPREME COURT] as well as Queens Education Society [2015 (3) TMI 619 - SUPREME COURT] as to the meaning of the expression ‘solely’ are erroneous. The trust or educational institution, which seeks approval or exemption, should solely be concerned with education, or education related activities. If, incidentally, while carrying on those objectives, the trust earns profits, it has to maintain separate books of account. It is only in those circumstances that ‘business’ income can be permitted- provided, as stated earlier, that the activity is education, or relating to education. The judgment in American Hotel (supra) as well as Queens Education Society (supra) do not state the correct law, and are accordingly overruled.
Whether the PA (Commissioner or any other designated authority) is in any manner enjoined to confine the nature of inquiry to discern the object of a society, trust or other institution at the stage when it approaches the authority for approval under Section 10 (23C)? - Having regard to the plain terms of the second proviso to Section 10(23C), which refers to the procedure for approval of applications including those made by trusts and institutions imparting education, one can discern no such restrictions. From the pointed reference to ‘audited annual accounts’ as one of the heads of information which can be legitimately called or requisitioned for consideration at the stage of approval of an application, the inference is clear: the Commissioner or the concerned authority’s hands are not tied in any manner whatsoever. The observations to the contrary in American Hotel (supra) appear to have overlooked the discretion vested in the Commissioner or the relevant authority to look into past history of accounts, and to discern whether the applicant was engaged in fact, ‘solely’ in education. American Hotel (supra) excluded altogether inquiry into the accounts by stating that such accounts may not be available.
Those observations in the opinion of the court assume that only newly set up societies, trusts, or institutions may apply for exemption. Whilst the statute potentially applies to newly created organizations, institutions or trusts, it equally applies to existing institutions, societies or trust, which may seek exemption at a later point.
This court is also of the opinion that the Commissioner or the concerned authority, while considering an application for approval and the further material called for (including audited statements), should confine the inquiry ordinarily to the nature of the income earned and whether it is for education or education related objects of the society (or trust). If the surplus or profits are generated in the hands of the assessee applicant in the imparting of education or related activities, disproportionate weight ought not be given to surpluses or profits, provided they are incidental. At the stage of registration or approval therefore focus is on the activity and not the proportion of income. If the income generating activity is intrinsically part of education, the Commissioner or other authority may not on that basis alone reject the application.
Clearly, charitable objects – defined by the A.P. Charities Act, are pari materia with the IT Act. Thus, establishments or associations or organizations (widely phrased terms) formed for ‘charitable purpose’ fall within the meaning of charitable institutions. These include societies and trusts, set up for educational purposes.
A.P. Charities Act provides a statutory regulatory framework in regard to activities of charitable institutions in the state. Sections 72-74 deal with surplus funds and their treatment; Sections 75-77 deal with properties of trusts and charitable institutions and restrictions on transfers. These and other provisions enable the State, which is concerned in the proper administration of such organizations, to ensure that they are managed efficiently without misfeasance. They also contain provisions to protect the interests of trusts, especially funds and properties.
It is held that charitable institutions and societies, which may be regulated by other state laws, have to comply with them- just as in the case of laws regulating education (at all levels). Compliance with or registration under those laws, are also a relevant consideration which can legitimately weigh with the Commissioner or other concerned authority, while deciding applications for approval under Section 10 (23C).
This reasoning equally applies especially in Section 11(4A) which speaks of profits incidental which specifies that exemption in relation to income or trust of an institution which are profits or means of business cannot be exempted ‘unless the business is incidental, trust or as the case may be institution and separate books of accounts are maintained by such trusts or institution in respect of such business’. Thus, the underlying objective of seventh proviso to Section 10(23C) and of Section 11(4A) are identical. These have to be read in the light of the main provision which spells out the conditions for exemption under Section 10(23C) - the same conditions would apply equally to the other sub-clauses of Section 10(23C) that deal with education, medical institution, hospitals etc.
The conclusions of this court are summarized as follows:
a. It is held that the requirement of the charitable institution, society or trust etc., to ‘solely’ engage itself in education or educational activities, and not engage in any activity of profit, means that such institutions cannot have objects which are unrelated to education. In other words, all objects of the society, trust etc., must relate to imparting education or be in relation to educational activities.
b. Where the objective of the institution appears to be profit-oriented, such institutions would not be entitled to approval under Section 10(23C) of the IT Act. At the same time, where surplus accrues in a given year or set of years per se, it is not a bar, provided such surplus is generated in the course of providing education or educational activities.
c. The seventh proviso to Section 10(23C), as well as Section 11(4A) refer to profits which may be ‘incidentally’ generated or earned by the charitable institution. In the present case, the same is applicable only to those institutions which impart education or are engaged in activities connected to education.
d. The reference to ‘business’ and ‘profits’ in the seventh proviso to Section 10(23C) and Section 11(4A) merely means that the profits of business which is ‘incidental’ to educational activity – as explained in the earlier part of the judgment i.e., relating to education such as sale of text books, providing school bus facilities, hostel facilities, etc.
e. The reasoning and conclusions in American Hotel (supra) and Queen’s Education Society (supra) so far as they pertain to the interpretation of expression ‘solely’ are hereby disapproved. The judgments are accordingly overruled to that extent.
f. While considering applications for approval under Section 10(23C), the Commissioner or the concerned authority as the case may be under the second proviso is not bound to examine only the objects of the institution. To ascertain the genuineness of the institution and the manner of its functioning, the Commissioner or other authority is free to call for the audited accounts or other such documents for recording satisfaction where the society, trust or institution genuinely seeks to achieve the objects which it professes. The observations made in American Hotel (supra) suggest that the Commissioner could not call for the records and that the examination of such accounts would be at the stage of assessment. Whilst that reasoning undoubtedly applies to newly set up charities, trusts etc. the proviso under Section 10(23C) is not confined to newly set up trusts – it also applies to existing ones. The Commissioner or other authority is not in any manner constrained from examining accounts and other related documents to see the pattern of income and expenditure.
g. It is held that wherever registration of trust or charities is obligatory under state or local laws, the concerned trust, society, other institution etc. seeking approval under Section 10(23C) should also comply with provisions of such state laws. This would enable the Commissioner or concerned authority to ascertain the genuineness of the trust, society etc. This reasoning is reinforced by the recent insertion of another proviso of Section 10(23C) with effect from 01.04.2021.
The interpretation of education being the ‘sole’ object of every trust or organization which seeks to propagate it, through this decision, accords with the constitutional understanding and, what is more, maintains its pristine and unsullied nature.
The assessees’ appeals fail. It is however clarified that their claim for approval or registration would have to be considered in the light of subsequent events, if any, disclosed in fresh applications made in that regard. This court is further of the opinion that since the present judgment has departed from the previous rulings regarding the meaning of the term ‘solely’, in order to avoid disruption, and to give time to institutions likely to be affected to make appropriate changes and adjustments, it would be in the larger interests of society that the present judgment operates hereafter. As a result, it is hereby directed that the law declared in the present judgment shall operate prospectively. The appeals are hereby dismissed, without order on costs.
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2022 (10) TMI 854
Reopening of assessment - validity of order passed u/s 148(A)(d) - as alleged that no reply had been furnished by the assessee pursuant to the notice issued under section 148A(b) - HELD THAT:- From the record, we do notice that there is acknowledgment of the fact that four documents were uploaded on the relevant portal on 6th April 2022, in regard to which no reference at all, had been made by the Assessing Officer in its order dated 16th April 2022. Without speculating as to what would be the result, if the AO had, in fact, considered the documents so uploaded, we are of the view that the documents in question ought to have been considered and its effect determined on the proceedings in question, which does not appear to have been done in the present case by the AO.
We set aside the order dated 16th April 2022 passed under section 148A(d) as also notice under section 148 of the Act, dated 16th April 2022, and remand the matter to the AO for considering afresh the entire issue in the light of the documents submitted on 6th April 2022. Any further explanation which the petitioner might wish to render, may also be submitted within a period of two weeks. It would be open to the Assessing Officer then to pass the appropriate orders in accordance with law.
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2022 (10) TMI 853
Assessment u/s 153A - Incriminating documents or materials found and seized at the time of search or not? - ITAT held that the addition which was not based on incriminating material found during the search could not be made in assessment under Section 153A - HELD THAT:- This Court in Principal Commissioner of Income Tax vs. Bhadani Financiers Pvt. Ltd. [2021 (9) TMI 902 - DELHI HIGH COURT] has held that where the assessment of the respondents had attained finality prior to the date of search and no incriminating documents or materials had been found and seized at the time of search, no addition could be made under Section 153A of the Act as the cases of the respondents were of non-abated assessment.
Though, the issue involved in Kabul Chawla [2015 (9) TMI 80 - DELHI HIGH COURT] has been challenged and is pending adjudication before the Supreme Court, yet there is no stay of the said judgment till date.
Consequently, in view of the judgments passed by the Supreme Court in Kunhayammed and Others vs. State of Kerala and Another [2000 (7) TMI 67 - SUPREME COURT] and Shree Chamundi Mopeds Ltd. Vs. Church of South India Trust Association CSI Cinod Secretariat, Madras [1992 (4) TMI 183 - SUPREME COURT] the present appeal is covered by the judgment passed by this Court in Bhadani Financiers Pvt. Ltd. (supra) and Kabul Chawla (supra). No substantial question of law
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2022 (10) TMI 852
Assessment proceedings initiated u/s 153C - addition on account of undisclosed investment u/s 69 B - HELD THAT:- Upon perusal of entire record and after close scrutiny of the findings recorded by learned authorities, the findings recorded by learned ITAT with regard to disclosure of additional income on account of construction material, which was also shown while filing return of income for AY 2016-17, do not appear to be illegal or perverse.
No substantial question of law as proposed by the Revenue arises in this appeal.
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2022 (10) TMI 851
Agricultural income - Allowance of deduction of the cost of replantation and the deduction towards upkeep and maintenance expenses - Assessee/Plantation Companies under Rule 7A(2) of the Rules - Scope of Income Tax Act 1961, the Income Tax Rules 1962 and the Kerala Agricultural Income Tax Act 1991 - allowance towards replanting expenses and a further deduction towards upkeep and maintenance expenses incurred by the assessee for the immature plants till the age of maturity in the computation of income under the Act and Rules.” - allowance for the cost of replanting expenses incurred over an extent of 48 acres and a further deduction towards maintenance and upkeep expenses incurred by the assessee for the rubber plants replanted in an area of 182 acres
HELD THAT:- Neither there is a controversy nor a debatable question on the applicable principles for computation of income of an assessee who is covered by the provisions of the AIT Act 1950 r/w KAIT Act, with effect from 01.04.2002 under Act 1961. In other words, up to 31.03.2002, the income from rubber plantations has been treated as agricultural income and the computation of agricultural income was by the allowances and deductions provided by Section 5 of the KAIT Act. With effect from 01.04.2002, the income derived from the manufacture of rubber is treated as income from business and 65% of the income is apportioned for agricultural income tax. Therefore, it is not a case of the Revenue, that while computing the income of an assessee under Rule 7A the provisions under the KAIT Act are also made applicable. Therefore, in the scheme of present things the assessment of income from rubber plantations is, in the first instance, made under Sections 28 to 44DB of Act 1961.
Whether the rubber plantation companies, under Rule 7A(2) of Rules 1962, are entitled to an allowance towards replanting expenses? - The Revenue cannot disallow the upkeep and maintenance claim in the computation of income under Section 37 of Act 1961. The Revenue cannot compel capitalization of upkeep and maintenance expenses and claim depreciation on the capitalized asset. The assessee/plantation owners to continue the business must lay out these expenses as revenue expenses to protect the rubber plants till the yield period. The upkeep and maintenance expenses do not result in bringing into existence a new capital asset or substituting a capital asset. This expenditure upkeeps and maintains a capital asset and over years enables the capital asset to generate business income. Therefore, inversely and conversely in the application of Section 37 of Act 1961 the assessees are entitled to claim the deduction of upkeep and maintenance expenses in the computation of income for tax under Act 1961.
Section 37 deals with what is known as residuary provision. The upkeep and maintenance expenses are incurred by the assessee till the rubber tree earns income. The test we would like to apply is whether the upkeep and maintenance expenditure is resulting in a new capital asset or an addition to the existing capital asset. The answer is no. The outlay brings into existence a new capital asset, then, from any point of view, such expenditure is nothing but capital expenditure. Take a case and examine where maintenance of a capital asset is necessary for deriving income from the asset, and whether such maintenance expenses of the asset would become capital expenditure. The expenditure is incurred by the assessee every year. The agricultural income is deemed as business income from the sale of rubber. Therefore, the available and allowable expenses are deducted in the computation of the business income of the assessee.
The question paused for our consideration since is arising under Section 37, which, as already noted, is a residuary provision, we keep in our perspective that in determining whether a particular item of expenditure is, or is not, deductible in computing the business profits, it is necessary first to enquire whether the deduction is expressly prohibited under any other provision or an expenditure described in Sections 30 to 36 of Act 1961. Therefore, in tax parlance, the computation of income from rubber plantations is treated as business income. In computing business income, Sections 28 to 44DB are kept in view.
We are convinced that the ratio in Rehabilitation Plantations Ltd.[2021 (10) TMI 1371 - KERALA HIGH COURT] case both on allowance and upkeep and maintenance expenses, is incorrect. The upkeep and maintenance expenses are revenue expenditures and the assesses are entitled to claim deduction under Section 37 of Act 1961.
The answers to the two facets of the question referred to the Full Bench are that:
“In the computation of business income under Rule 7A of the Rule 1962, the assessee under Rule 7A(2) is entitled to an allowance in respect of the cost of replacement of dead and useless rubber trees in the rubber plantation in an area not abandoned, subject to Section 10(31) of Act 1961. The upkeep and maintenance expenses incurred by the assessee till the maturity of rubber trees are revenue expenditures eligible for deduction under Section 37 of Act 1961.”
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2022 (10) TMI 850
Deduction u/s 80P(2)(a)(i) - AO denied the claim of the assessee on the ground that interest income earned by making investment of surplus funds has to be assessed under the head "Income from Other Sources" and not income from business and since interest income is not assessed as business income, the claim for deduction u/s 57 of the Act cannot be allowed - HELD THAT:- We find that co-operative society is a broad and larger umbrella under which the co-operative banks do perform. We also note that all co-operative societies may not be banks, but all co-operative banks are deemed to be cooperative societies. According to banking Regulations Act, a cooperative society bank as the same meaning of the co- operative society.
On a plain reading of section 80P(2)(d), there is no such stipulation or prerequisite as to the nature of the funds. We also find that Section 80P(2)(d) of the Act, allows whole deduction of an income by way of interest or dividends derived by the cooperative society from its investment with any other co-operative society.
Section 80P(2)(d) provides additional benefit of deduction under section 80P for those co-operative societies, which has surplus funds even unrelated to its main business activity, which are invested with other co-operative societies. Thus, Clause (d) of section 80P applies to all co-operative societies, whether or not, their main businesses banking and credit facilities to the members. Therefore, in our view, the section envisages deduction in respect of any income derived by the co-operative society from any investment with a co-operative society.
Thus we hold that the assessee is eligible for deduction under section 80P(2)(d) in respect of interest earned from deposits made on other Co-operative banks. However, we deem it appropriate on the facts of the instant case, to restore the issue of claim of deduction u/s 80P(2)(d) of the Act, to the files of the Ld.AO to allow the claim as indicated herein above, by granting proper opportunity of being heard to the assessee.
We direct the Ld.AO to allow the expenditure incurred while computing income under the head, ‘Income from Other Sources’, in relation to earning of interest from the commercial banks.
Unaccounted money of the assessee in old currency notes (SBN) have been pumped into as unaccounted money - Not granting sufficient time to the assessee for representing its case before the Ld.PCIT - HELD THAT:- The instruction dated 21/02/2017 that the assessing officer basic relevant information e.g. monthly sales summary, relevant stock register entries and bank statement to identify cases with preliminary suspicion of back dating of cash and is or fictitious sales. The instruction is also suggested some indicators for suspicion of back dating of cash else or fictitious sales where there is an abnormal jump in the cases during the period November to December 2016 as compared to earlier year. It also suggests that, abnormal jump in percentage of cash trails to on identifiable persons as compared to earlier histories will also give some indication for suspicion. Non-availability of stock or attempts to inflate stock by introducing fictitious purchases is also some indication for suspicion of fictitious sales. Transfer of deposit of cash to another account or entity, which is not in line with the earlier history. Therefore, it is important to examine whether the case of the assessee falls into any of the above parameters are not.
The assessee is directed to establish all relevant details to substantiate its claim in line with the above applicable instructions. We are aware of the fact that not every deposit during the demonetisation period would fall under category of unaccounted cash. However the burden is on the assessee to establish the genuineness of the deposit in order to fall outside the scope of unaccounted cash.
AO shall verify all the details / evidences filed by the assessee based on the above direction and to consider the claim in accordance with law.
Needless to say that proper opportunity of being heard must be granted to the assessee. The assessee may be granted physical hearing in order to justify its claim.
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2022 (10) TMI 849
Determination of capital gain - addition made towards the valuation as per DVOJs report u/s 50C - discrepancy between DVQ's valuation and declared value as per sale deed - HELD THAT:- We are of the considered view that if the difference between the value adopted by the DVO for estimating the sale price of the properties under consideration and the sale value declared by the assessee in its return of income is less than 15%, then the value adopted by the assessee may be taken into consideration. Accordingly, the matter is being restored to the file of the assessing officer to determine whether in the instant facts, the difference between the sale value adopted by the DVO and that by the assessee in respect of properties under consideration is less than 15% as submitted by the assessee. In the event, if such difference is less than 15%, then the sale value adopted by the assessee in its return of income may be taken into consideration, for the purpose of determining the capital gains tax.
CIT(Appeals) not considering the ground of cost of improvement, stamp duty etc. - We observe that vide order sheet entry ITAT observed that assessee had not filed Form number 35, and accordingly it is not possible to decide whether this ground of appeal was raised before CIT(Appeals). We now observe that a perusal of Form 35 shows that the assessee has not raised any ground of appeal in connection with claim of cost of improvement before Ld. CIT(Appeals). Further, we have also perused the various written submissions filed by the assessee before CIT(Appeals) and from the same also it is apparent that the assessee has not filed any written submissions in respect of the claim of cost of improvement before Ld. CIT(Appeals) for his consideration.
Though, apparently order of the CIT(Appeals), wherein the CIT has re-produced the relevant extracts of remand report received from the AO, there an indirect mention that “in absence of evidence to the effect, cost of improvement could not be verified”, however, besides the above, neither this ground is coming as per the grounds of appeal before CIT(Appeals), nor is it anywhere coming in written submissions filed before CIT(Appeals) during the course of appellate proceedings. Accordingly, in our considered, view ground of the assessee’s appeal is infructious since this issue was never raised before CIT(Appeals) for his consideration.
Disallowance of interest expenses - HELD THAT:- CIT(Appeals) in its order has specifically observed that the assessee has simply mentioned that interest has been paid on loans taken for its property business. However, no documentary evidences have been furnished by the assessee and no nexus between the loans taken and the property purchased has been shown. Accordingly in absence of any supporting documents filed by the assessee during the appellate proceedings, Ld. CIT(Appeals) dismissed this ground of appeal of the assessee.
We find no infirmity in the order of Ld. CIT(Appeals) who, on appreciation of facts/supporting documents placed before him, dismissed assessee’s appeal on this ground.
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2022 (10) TMI 848
Short deduction of taxes - credit to the assessee for TDS deducted denied - HELD THAT:- As it seems that the assessee has in fact deposited TDS and there is no short deduction of TDS (as evident from the “Justification Report” submitted by the Revenue). Accordingly, the matter is being restored to the file of the concerned Assessing Officer, who is directed to grant necessary credit to the assessee for TDS deducted and delete demand on account of short deduction of TDS and consequential interest.
In our view, in the instant case, the assessee has deducted and deposited TDS within time, but due to a technical error in CPC site, the assessee has not been granted credit of TDS, for no default on behalf of the assessee. It is a fit case where the assessee should be granted necessary credit of TDS paid by AO and he may accordingly internally coordinate with CPC so that the assessee does not have to undergo any further difficulty / inconvenience for no default on his part.
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2022 (10) TMI 847
Unexplained income outside the books of accounts - Addition made to the returned income on account of Undisclosed net income - CIT-A deleted the addition - HELD THAT:- As observed that this amount has already been offered to tax by the assessee in the return of income under the head “other receipts”. Therefore, Ld. CIT(Appeals), in our view has correctly held that the said amount cannot be brought to tax as gross receipts in the hands of the assessee company again, since the same would amount to double taxation of the same receipts.
Whether the expenses against the same are to be allowed, or whether it can be inferred from the statement of the Partner of the assessee firm that the said amount represents “net income” of the assessee firm, and accordingly no further expenses my be allowed against the same? - CIT(Appeals) has correctly observed that from the statement recorded of the Partner of the firm, it cannot be inferred that the said amount of ₹ 11 crores represents “net income” of the assessee firm, and therefore, the assessee is not eligible to claim any expenses against the same. Once the position is admitted that the assessee has offered the undisclosed sum in the return of income, and during the course of detailed assessment, the assessing Officer has not doubted the genuineness of expenses claimed in the return of income, then such expenses should be allowed against the undisclosed income offered by the assessee in the return of income. Accordingly, in our considered view, Ld. CIT(Appeals) has not erred in facts and in law in granting relief to the assessee in respect of this addition referred to above.
Addition towards interest expenditure incurred - Since the Ld. CIT(Appeals) in the immediately preceding year has accepted the deposits from five companies as genuine and further in the present year, Ld. CIT(Appeals) has also allowed the assessee’s claim of expenditure under section 36(1)(iii) of the Act, with respect to the above interest expenditure, we find no infirmity in the order of the Ld. CIT(Appeals), while granting relief the assessee.
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2022 (10) TMI 846
Adjustment made u/s.143(1) - amount received on maturity of insurance policy as appearing in Form No.26AS - Adjustment by way of addition of income - HELD THAT:- Deduction of tax remains towards income albeit calculated on the gross sum. One of such examples is section 194DA, which provides for deducting tax at source on the gross sum paid but a lower rate of 1%. Thus deduction of tax at source on the sum paid under a life insurance policy does not convert the income portion embedded in such sum into non-income. When turn to section 143(1)(a)(vi) referring to ‘addition of income appearing in Form No.26AS’ which have not been included by the assessee in the total income in the return, there remains no doubt whatsoever that it talks of making adjustment of income directly received as such; or as comprised in the gross sum on which tax has been deducted at source. Ergo, the contention that since section 194DA requires deduction of tax at source on the sum payable and not the income and hence section 143(1), talking of making adjustment as addition of income, cannot apply, is jettisoned.
It is clear from Form No.26AS that net sum of Rs.11.76 lakh was credited to the assessee’s account and deduction of tax at source was made - The assessee did not offer any income on this score in the income-tax return. Section 143(1) of the Act provides for processing of the return. Clause (a) states that the total income or loss shall be computed after making certain adjustments to the income returned. Sub-clause (vi) of clause (a) provides for such an adjustment on account of “addition of income appearing in Form No.26AS which has not been included in computing the total income in the return”.
A bare perusal of the provision transpires that any income appearing in Form No.26AS which has not been included in the total income by the assessee will call for adjustment u/s.143(1) of the Act. Form No.26AS, in the present context, has its genesis to section 194DA with the heading `Payment in respect of life insurance policy’.
The interpretation of the provision makes it manifest that exemption under section 10(10D) does not apply if the conditions of clause (c) are satisfied, in which case the income becomes chargeable to tax. However, the quantum of taxable income, as explained in the Circular is: `the income accruing on such policies (not including the premium paid by the assessee).’ In the hue of the above, it is patent that though deduction of tax at source u/s 194DA is contemplated on the gross amount paid under a life insurance policy, but the income is such sum received as reduced by the amount of premium paid. Section 143(1) provides for making adjustment by way of `addition of income appearing in Form no. 26AS’ and not the sum so appearing in the Form. Evidently, it is only the amount of income which can be added by means of adjustment u/s 143(1).
Reverting to the facts, the assessee received a sum towards premature surrender of life insurance policy and the amount of premium paid was Rs.8.00 lakh. The resultant income is Rs.4,07,419/-, which calls for adjustment in the intimation u/s.143(1) of the Act. With another negative interest income of Rs.31,419 in Form No. 26AS, which was reduced by the AO himself, the further sustainable amount of the adjustment comes to Rs.3,76,000/-. Assessee appeal is partly allowed.
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2022 (10) TMI 845
Invocation of Reassessment Proceedings - assessee has shown unaccounted purchases and claimed depreciation on plant and machinery, which were found to be bogus - HELD THAT:- If there is relevant material on the basis of which reasonable person can form a requisite belief that income chargeable to tax has escaped assessment, then proceedings under section 147 of the Act can be validly initiated. Further, it is also well settled that sufficiency or correctness of the material is not a thing to be considered at the stage of recording of reasons. From the reasons recorded for reopening the assessment in the case of assessee it is also evident that the assessee has not disclosed truly and fully all material facts. As a result, we find no infirmity in the reassessment proceedings initiated by the AO under section 147 of the Act. Thus, the grounds raised by the assessee pertaining to this issue are dismissed.
Notice u/s 143(2) was not served within the prescribed period - As per section 143(2) of the Act, notice under this section is required to be served on the assessee before the expiry of 6 months from the end of the financial year in which the return under section 139 or in response to notice under section 142(1) of the Act is furnished. Thus, the time period provided in the aforesaid section for issuance of notice is in respect of return filed under section 139 or in response to notice under section 142 (1) of the Act. However, in the present case, reassessment proceedings were initiated by the AO under section 147 and notice under section 143(2) was issued only pursuant there to. Thus, in view of the above, in absence of any other material available on record we are of the considered view that notice u/s 143(2) of the Act was served to the assessee within the prescribed time pursuant to initiation of reassessment proceedings in the present case. Thus, the ground raised by the assessee pertaining to this issue is dismissed.
Addition on account of alleged purchases out of books - We find that details/books of accounts were not produced by the assessee despite various opportunities - the assessee though claimed that all his record/books of accounts were destroyed in the fire, however, neither produced the parties from whom it has made the purchases nor filed any documentary evidence to justify its claim that purchases as shown in profit and loss account are the only purchases made by the assessee. Further, there is nothing available on record to dispute the adoption of enhanced GP rate @8% for assessment year 2009–10. Thus, in view of the above, in absence of any material to support the claim of the assessee, we find no infirmity in the impugned order passed by the CIT(A) on this issue. As a result, addition made by the AO on this issue is upheld. Thus, the ground raised by the assessee pertaining to this issue is dismissed.
Disallowance of depreciation on account of bogus purchases of plant and machinery - We find that regarding the process of verification, the valuers had submitted that machines were looking very old. Further the metallic plate on the machines which contains all the technical details of the particular machines i.e. machines serial No., model No., year of manufacturing, electrical ratings, operating diagram, make and various details of the machinery was missing. The valuers further submitted that there was no basis to ascertain the model and the year of manufacture and the year of installation of the machines. Further, the valuers submitted that ownership of the machines cannot be verified in absence of invoices and fixed assets register. In absence of details as sought by the lower authorities, the bills produced by the assessee were found to be bogus. Thus, in view of the above findings, we find no infirmity in the impugned order passed by the learned CIT(A) on this issue. As a result, addition made by the AO on this issue is upheld. Thus, the ground raised by the assessee pertaining to this issue is dismissed.
Disallowance of payment of interest expenses - Since, borrowed funds have been siphoned off the interest claimed by the assessee was disallowed by the AO. CIT(A) also dismissed the appeal filed by the assessee as held since borrowed funds have been siphoned off, the interest claimed on the same cannot be considered as used for business. The disallowance is warranted. The computation made by the assessing officer is fair and reasonable.As, findings of learned CIT(A) in respect of bogus purchases have been upheld, we find no infirmity in the aforesaid findings of learned CIT(A) on this issue. Thus, the ground raised by the assessee pertaining to this issue is dismissed.
Ad hoc disallowance of administrative expenses - We find that the assessee did not produce any details/evidence in support of its claim of admission to expenses. In absence of the details, the AO disallowed 10% of administrative expenses by the assessee and added the same to total income. During the appellate proceedings before the learned CIT(A), assessee submitted that administrative expenses constitute only minuscule portion of the total turnover. We find that apart from the aforesaid submission nothing has been brought on record to prove that the administrative expenses as claimed was incurred for purpose of business. Thus, in view of the above, we find no infirmity in the impugned order passed by the learned CIT(A) upholding the disallowance of 10% of administrative expenses claimed by the assessee. Thus, the ground raised by the assessee pertaining to this issue is dismissed.
Levy of interest under section 234A - We deem it appropriate to remand this aspect to the file of AO for de novo adjudication after necessary examination of the fact whether the return of income was filed by the assessee within the prescribed time under the Act. While, interest levied under section 234B and 234C of the Act are consequential in nature. Accordingly, same is allowed for statistical purpose.
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2022 (10) TMI 844
Deduction allowable u/s 35(2AB) - Necessity of approval to be granted by prescribed authority - Scope of amendment - HELD THAT:- ITAT Pune Tribunal in the recent case of DCIT v. Force Motors [2021 (9) TMI 244 - ITAT PUNE] while dealing with identical issue held that prior to amendment in 2016, section 35(2AB) of the Act does not provide any methodology of approval to be granted by prescribed authority vis-a-vis expenditure from year to year and therefore, order of Assessing Officer in curtailing expenditure and consequent weighted deduction claimed under section 35(2AB) on ground that deduction cannot exceed claims approved by prescribed authority, had rightly been set aside.
The Kolkota Tribunal in recent case of DCIT v. STP Ltd. [2021 (1) TMI 830 - ITAT KOLKATA] held that prior to 1-6-2016, only requirement to claim deduction under section 35(2AB) was to receive recognition from prescribed authority since said recognition was obtained by assessee on 26-3-2013, deduction could not be denied merely because prescribed authority failed to send intimation in Form 3CL in respect of expenditure incurred by R&D unit for relevant assessment year.
Thus on a perusal of the various Rulings, the position is clear that prior to amendment introduced w.e.f. 01/07/2016, the deduction u/s 35(2AB) of the Act would be available to an assessee having an approved in-house R&D facility by the prescribed Authority Act and there is no mention of approval of the ‘quantum’ of expenditure in the law as it stood prior to that date. The mandate of quantification of expenditure has been put in place only w.e.f. 01.07.2016. In view of the above observations and judicial precedents on the subject, we allow the appeal of the assessee.
Addition of PF/ESI expenses u/s. 36(1)(va) - assessee did not deposit employees' contribution to employees' account - HELD THAT:- We note that the issue is squarely covered against the assessee by case of Gujarat State Road Transportation Corporation [2014 (1) TMI 502 - GUJARAT HIGH COURT] wherein it was held that where assessee did not deposit employees' contribution to employees' account in relevant fund before due date prescribed in Explanation to section 36(1)(va), no deduction would be admissible even though he deposits same before due date under section 43B of the Act. Again, in the case of Pr. CIT v. Suzlon Energy Ltd. [2020 (2) TMI 792 - GUJARAT HIGH COURT] held that where assessee had not deposited employees' contributions towards PF and ESI amounting Rs. 15.20 lakhs within prescribed period in law and Assessing Officer by invoking provisions of section 36(1)(va) read with section 2(24)(x) made addition of aforesaid amount to income of assessee, impugned addition made to income of assessee was justified. - Decided against assessee.
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2022 (10) TMI 843
Reopening of assessment u/s 147 - absence of issuance of notice by the A.O. u/s 143(2) - Whether curable defect u/s 292BB? - HELD THAT:- From the careful perusal of the orders of the authorities below and the order sheet entries placed on record, as noticed that no notice under section 143(2) has been issued/served upon the assessee. Therefore, find force in the arguments of the assessee that in absence of statutory notice u/s 143(2) the consequent assessment framed under section 143(3)/147 cannot be sustained in the eye of law.
As noticed on identical facts in the case of Flovel Energy Pvt. Ltd. [2020 (1) TMI 1046 - ITAT DELHI] has annulled the assessment order by following the Judgment of Alpine Electronics Asia Pvt. Ltd., [2012 (1) TMI 100 - DELHI HIGH COURT] wherein the Judgment of Hotel Blue Moon [2010 (2) TMI 1 - SUPREME COURT] has been referred. I find even provision of Section 292BB of the I.T. Act, 1961 does not cure non-issuance of notice as held by Hon’ble jurisdictional Delhi High Court in the case of PCIT vs., Jai Shiv Shankar Traders [2015 (10) TMI 1765 - DELHI HIGH COURT]
Assessment order passed by the A.O. is not sustainable in law and, therefore, the assessment order is quashed. - Decided in favour of assessee.
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2022 (10) TMI 842
Estimation of income - bogus purchases - HELD THAT:- As from the orders of the authorities below it nowhere appears that the Assessee has duly produced the stock records as claimed by the Assessee. It is a fact that in Item no. 35 of form no. 3CD, the Assessee instead of providing quantitative details of goods traded and raw-material etc. simply stated that Item no. 35 of Form 3CD is not applicable.
Assessee failed to demonstrate before the authorities below as to how the Assessee was not required to provide quantitative details of goods traded and raw-material etc. in Item no. 35 of Form no. 3CD before the authorities below. Find no material and/or reason to controvert the findings of the authorities below. We further observe that for the ends of justice the ld. Commissioner has given substantial relief to the Assessee by reducing the disallowance from 20% to 10%. Hence in cumulative effects, no interference is warranted. Consequently, the decision of the learned Commissioner in affirming the disallowance @ 10% of the consumption on foods and beverages is affirmed.
Nature of expenses - Disallowance of expenses incurred on repairs by treating the said expenditure as capital in nature - HELD THAT:- AO specifically held that the Assessee has incurred the expenses on purchase of Air Conditioners outdoor units which were stolen, pipes, cables and accessories, compressor, miscellaneous accessories, dryer, PVC Cable, wooden crate boat, kitchen equipments etc. which provides enduring benefits and not confined to the use of one year only and also not of the ‘recurring nature’. Commissioner though affirmed the addition on these items, however allowed the depreciation on the said expenditure before computing the income.
We have given thoughtful consideration to the determination made by the Ld. Commissioner and the AO and do not find any infirmity in determination made by the Ld. Commissioner on the issue in hand. Even otherwise also we do not find any material/reason to controvert the findings of the ld. Commissioner. Hence, addition under challenge does not require any interference. Consequently ground nos. 5 & 6 are also dismissed.
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