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TMI Blog2004 (3) TMI 355X X X X Extracts X X X X X X X X Extracts X X X X ..... ee which were at Rs. 1619.35 lakhs for the year under consideration as compared to Rs. 1497.84 lakhs for the earlier year and the increase in expenses under the heads 'hamali, miscellaneous and office expenses' were very less. It was stated that the expenses under these heads for the year under consideration were Rs. 4,77,125 as against Rs. 4,40,466 for the earlier year. Therefore, the increase was very nominal and all the expenses were verifiable. It was explained that hamali expenses were paid to different labour contractors and even TDS had been deducted on those payments. The details were furnished before the AO and no discrepancy was pointed out therein. It was argued that no such disallowance had been made in the past and even for the year under consideration the books of account had not been rejected. Therefore, there was no justification for making the disallowance on estimate basis. The reliance was placed on the following decisions: (i) Speed Carriers vs. ITO (1987) 27 TTJ (Ahd) 387 (ii) Beta Naphthol (P) Ltd. vs. Dy. CIT (1994) 50 TTJ (Ind) 375 (iii) Jupiter Textile vs. ITO (2002) 77 TTJ (Jd) 735. In his rival submissions, the learned Departmental Representative stro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment made was covered by the CBDT circular No. 226 dt. 31st May, 1997 and r. 6DD(j), as prevailing at the relevant time. It was stated that the exceptional or unavoidable circumstances as discussed in Circular No. 226 were there in the case of the assessee because the supplier was new to the assessee and the purchaser was not having any bank account. In respect of another payment of Rs. 18,000, it was stated that it was made to Bhanwarlal Sanwarmal, against contract at the instance of the party. Later on, the contract was cancelled and the whole of the amount received back. In support of the above contention, the learned counsel for the assessee drew our attention towards the copy of account of the above party filed at pp. 39-40 of the paper book. It was stated that the genuineness of the payments and the identity of the party had not been doubted at any stage. There was no justification for making the disallowance. The reliance was placed on the decision in the case of Kantilal Purshottam & Co. vs. CIT (1986) 53 CTR (Raj) 19 : (1985) 155 ITR 519 (Raj), wherein it has been held that the provisions of s. 40A(3) are not mandatory and when genuineness of payments and identity of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the purchase made from sister-concerns, namely, Shyam Oil & Ajay Enterprises 1,36,609 c. Total salary payment to Mahesh, Prakash and Vinod disallowed 1,34,172 2,83,224" The assessee carried the matter to the learned CIT(A) and stated that the additions made by the AO were without any justification. It was further stated that the water expenses given to the director were not excessive because the assessee received water from other persons also and even lesser rate of purchase of water had been allowed to the directors in comparison to the other persons. It was stated that there was no justification in making the disallowance out of the purchases @ 1 per cent. As regards to the salary paid to S/Sh. Mahesh, Prakash and Vinod, it was stated that the payments had been made for the work done by them. The learned CIT(A) did not find any merit in the submissions of the assessee and confirmed the action of the AO. 5.1 Before us, the learned counsel for the assessee reiterated the submissions made before the CIT(A) and submitted that the water expenses paid to Sh. Govind Ram Chhugani were at lesser rate in comparison to the market price and he was an existing income-tax asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ival submissions and the material available on record. It is noticed that the AO while disallowing 10 per cent of the water charges had not cited any comparable case where the payment had been made at lower rate. It seems that the disallowance had been made without any basis. Similarly, for making the disallowance @ 1 per cent of the total purchases from the sister-concerns, the AO had not quoted any instance to substantiate that the purchases made by the assessee were at higher rates. The AO while making ad hoc disallowance @ 1 per cent had not given any valid reasons which shows that the disallowance had been made merely on assumptions and presumptions, which is not tenable in the eyes of law. Similarly, for making the disallowance of salary, the AO never stated that the payments were excessive. The disallowance had been made merely on the basis that the persons working for the assessee were the relatives of the directors. Under the provisions of s. 40A(2)(b), the payment can be disallowed if it is found that the payments made to the relatives are excessive but nowhere it is provided that the whole of the claim can be disallowed. In the instant case, the AO disallowed the whole o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otment and thus the assessee earned interest on those deposits. The assessee had incurred expenses, i.e. public issue expenses. Setting off the interest income against expenses was fully justified. As regards to the cases relied upon by the AO as well as the CIT(A), the learned counsel for the assessee submitted that in those cases interest was earned before commencement of the business, whereas the assessee was having running business and in those cases no direct expenditure was incurred for earning interest, whereas in the assessee's case public issue expenses were incurred for raising funds from the public and the interest had been earned on share application money as received from the date of collection to the date of finalisation of the allotment and the interest earned has a direct nexus with the expenses incurred. In view of the above, it was stated that the facts of the cases relied upon by the AO and the learned CIT(A) were altogether different from the facts of the assessee's case. The learned counsel for the assessee further submitted that the facts of the case decided by the apex Court in the case of CIT vs. Bokaro Steel Ltd. (1999) 151 CTR (SC) 276 : (1999) 236 ITR 315 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... truction work smoothly. The assessee-company had charged interest. This interest was later adjusted against the dues of the contractors. (iii) For the purpose of the construction work the assessee had given on hire certain plant and machinery to the contractors. Against the letting of plant and machinery, the assessee received from the contractors, income in the form of hire charges. (iv) The assessee-company allowed the contractors to use the stones lying on the assessee's land for construction work. The stones lying on the assessee-company's land were the capital assets of the assessee-company. The assessee charged the contractors a certain amount by way of royalty for excavation and use of these stones for construction work. (v) The assessee had, during the asst. yr. 1971-72, shown in its accounts as income from interest a certain sum said to have accrued to the assessee from H for eight locomotives supplied by the assessee. The Tribunal held that the amounts under items Nos. 1 to 4 received by the assessee had gone to reduce the cost of construction. These were in the nature of capital receipts which could be set off against the capital expenditure incurred by the assessee duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue expenditure. During assessment proceedings, the AO found that the assessee had made payment of Rs. 2,13,414 to the Registrar of Companies and had further debited a sum of Rs. 1,92,438 in the P&L a/c. According to the AO, such expenses were capital in nature and not revenue, as claimed by the assessee. The reliance was placed on the decision in the case reported in Punjab State Industrial Development Corpn. Ltd. vs. CIT (1997) 140 CTR (SC) 594 : (1997) 225 ITR 792 (SC). Before the learned CIT(A), the claim of the assessee was that the expenses in question were revenue in nature and not capital expenses. The learned CIT(A) did not find any merit in the submissions of the assessee and confirmed the action of the AO by observing that the assessee had incurred such expenses on account of increase in the authorised share capital. 7.1 Before us, the learned counsel for the assessee submitted that a sum of Rs. 2,13,440 was paid to the Registrar of Companies on various dates and further payment of Rs. 1,92,438 was made, out of which a sum of Rs. 1,91,820 related to the increase of authorised capital for the purpose of public issue. These expenses were only capital in nature and the rema ..... X X X X Extracts X X X X X X X X Extracts X X X X
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