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2015 (7) TMI 948 - AT - Income TaxDisallowance of Short-landing i.e. short receipt of goods - AO held that the assessee had unnecessarily claimed this amount in the books of account, but that the assessee should have recovered this amount from its principal companies which supplied the goods to it short either through raising debit notes or reducing the bills amount - Held that:- As during the relevant financial year, the short-landing is only 0.05% on sales and 0.07% of the cost of goods sold by the assessee. It is also worth mentioning that the loss is not pertaining to a single item but is the total of many items imported by the assessee. In the case of shipment, it cannot be disputed that there is a possibility of wastage in quantity due to various factors such as leakage, drying up, evaporation etc., particularly since the goods imported are chemicals. In such a scenario, wastage in transit appears to be common and loss of such shortage of goods delivered to the assessee particularly when it is negligible has to be allowed as expenditure to the assessee. We appreciate the contention of the assessee that raising debit or credit note on small amounts might be more costly than setting off the above shortage. Further, it is to be left to the wisdom of the businessman as to the method he wants to adopt to make a transaction cost-effective. Therefore, we are of the opinion that the claim of the assessee of short-landing particularly because it is negligible as compared to its sales and cost of goods sold, has to be allowed. - Decided in favour of assessee. Error in preparation of goods receipt and physical difference - disallowance of these items on the ground that the difference is due to the error committed by the warehouse personnel and that the assessee should have claimed the loss from such contractor and further that it is not the expenditure of the assessee - Held that:- As long as the loss is arising out of the business operations of the assessee and the genuineness of the same is not doubted by the AO, it is immaterial as to whether the loss is arising out of error committed by the external service provider or the assessee, it is the loss of the assessee and it can be claimed by the assessee. Further this view is in consonance with the decisions relied upon by the assessee (cited supra). The argument of the assessee that write off of negligible amount of loss on account of above error is cost effective as compared to claims to be made against the third party and the costs involved in processing such claims finds favour with us particularly since loss on account of these two items is only 0.01% and 0.02% on sales and cost of goods respectively. - Decided in favour of assessee. Disallowance of Breakage charger @ 50% - Held that:- The only reason for making disallowance is that handling of these bottles is by a professional agency and therefore the loss should also have been claimed from them because the assessee is making payment to the professional agency towards these services. On going through the chart filed by the learned counsel for the assessee showing the ratio of the loss on such breakage to sales, we find that loss on account of breakage is 0.07% of the sales during the relevant assessment year which is negligible as compared to the huge turnover of the assessee. The assessee is making payment to the professional agency for the services rendered by them but the breakage is not attributable to the employees of the professional alone. In such a situation, we do not agree with the observation of the AO that the assessee should have claimed the loss from the professional agency only. As long as the loss is on account of business activity carried on by the assessee, it cannot be disallowed.- Decided in favour of assessee. Management fee paid to Sigma Aldrich USA disallowed - Held that:- Neither the AO nor the CIT(A) has brought out any details of the services rendered by the AEs to the assessee and as to how the knowledge is made available to the assessee to bring it within the provisions of section 40(a)(ia) of the Act for non-deduction of tax at source. For coming to the conclusion that the knowledge is made available to the assessee, the nature of the transaction has to be looked into. Merely holding that the work of catalogue printing, brochures etc., is not a highly specialized one and is available within the country, cannot be said to be a specialized activity requiring making available of the technology to the assessee. Therefore, we deem it fit and proper to remit this issue to the file of the AO for reexamination of the nature of the transaction and only if it falls within the definition of ‘technical and consultancy services’ under the India- USA DTAA, the provisions of sec. 40(a)(ia) can be applied. Decided in favour of assessee for statistical purposes. Disallowance of staff welfare expenses - Held that:- It the assessee has not furnished bills and vouchers in support of its claim. The burden is on the assessee to furnish the necessary details in support of the claim of expenses made by it. In the absence of such details, the AO has made disallowance which has been restricted to 15% by the CIT(A). We do not see any reason to interfere with the order of the CIT(A) on this issue. - Decided against assessee. Disallowance of Travelling expenses - Held that:- CIT(A) on perusal of the evidence filed by the assessee has observed that several of these are invoices drawn by Wipro towards ‘SAP Functional Consultancy Charges’ rather than involving travel per se. He also observed that both the invoicing and invoiced parties are addressed at Bangalore and therefore they do not support the assessee’s contention of having provided full and complete details of travel before the AO. The learned counsel for the assessee has not produced before us any other supporting evidence other than that filed before the AO and the CIT(A) to rebut the above finding of the CIT(A). Therefore, we do not see any reason to interfere with the order of the CIT(A) on this issue. - Decided against assessee. Treatment of SAP costs - AO disallowed 50% of the same and brought it to tax - CIT(A) deleted disallowance - Held that:- Genuineness of the payment made by the assessee is not doubted by the AO nor is the purpose of the program being for assessee’s business is doubted by the AO. As long as the expenditure is for the purpose of business, the same cannot be disallowed. As rightly pointed out by the CIT(A), questioning the speed or validity of the SAP system for the assessee’s business for purpose of disallowance of expenditure is beyond the scope of the AO unless he points to specific reasons to hold that the system is not used for business of the assessee. Therefore, we do not see any reason to interfere with the order of the CIT(A) - Decided against revenue. Payment towards logistic services, warehouse management and customs clearances disallowed - Held that:- The only ground on which the AO has disallowed is that at the time of inspection, very few of the employees of the contractor were present at the premises. The contention of the assessee that the time of inspection was 6 PM is not rebutted by the department. Such being the time of inspection, explanation of the assessee that the employees of the contractor have already left for the day is not unacceptable. Since the expenditure is for the business purpose of the assessee, an ad hoc disallowance of the same is not justified - Decided against revenue. Expired inventory disallowed @ 50% - Held that:- On nature of the assessee’s business, we agree with the contention of the assessee that the goods of the assessee which are nearing expiry date have to be written off. Further, the ratio of such goods to sale is only 0.12% on sales and 0.18% on cost of goods sold. Therefore, we are of the opinion that such disallowance is not called for. - Decided against revenue. Stock issued for Genosys production as consumables disallowed - Held that:- Though the assessee has claimed that Genosys Production has manufactured the products and offered income from sale of these products as assessee’s income, the CIT(A) has not verified the same and has accepted the contentions of the assessee at face value and allowed relief to the assessee. In view of the same, we deem it fit and proper to remit this issue to the file of the AO to verify the assessee’s contention and if it is found to be correct, then no disallowance shall be made. - Decided in favour of revenue for statistical purposes. Quality rejects disallowed - Held that:- Neither the AO nor the CIT(A) has doubted the genuineness of the expenditure and the CIT(A) has allowed 25% of the claim as allowable deduction by holding that the quality check measures are an integral part of any professionally managed company and it is not likely that quality measures would be treated in a casual manner, thus requiring significant write off. From the chart given by the assessee, we find that the quality rejection amounts to 0.13% of sales and 0.17% on cost of goods sold. Considering the nature of the goods manufactured by the assessee, it cannot be presumed that the quality of goods is always met and that write off is not necessary. Therefore, since genuineness of the expenditure has not been doubted by the authorities below, we are inclined to grant full relief to the assessee on this issue - Decided in favour of assessee.
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