TMI Blog2012 (11) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... sary to establish that in fact had become irrecoverable u/s 36(1)(vii) of I.T.A Act - customer loss in all three years are allowed subject to verify from the assessment record of M/s Himson Overseas Pvt. Ltd. that no deduction of same amount has been allowed by its A.O Disallowances of 50% of erection expenses - expenses have gone up whereas turnover has gone down - work was completed by the sister concern Held that:- A.O. had not brought on record any material for excessive payment u/s 40A(2)(b) of the Act made to M/s Himson Techno Services Pvt. Ltd. The A.O. had disallowed lump-sum expenses on estimate basis. These payments were for erection and technical work. The comparable rates were not available being an engineering work - addition deleted Addition u/s 41(1) of the I.T. Act - Addition on account of cessation of liability alleged that the assessee had shown creditor of Rs.37,25,695/- more than three years Held that:- A.O. has not brought on record any evidence that the liability had been obtained by the assessee by way of remission or cessation. The burden of proof lies on the revenue. The appellant had filed confirmation of its sister concern - assessee has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces of the case and in law, the ld. CIT(A) has erred in deleting the addition on account of disallowance of depreciation in respect of subsidy amount received towards plant and machineries-Rs.4,18,520/- (ii) On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition on account of estimation of gross profit Rs.2,80,93,222/-. (iii) On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition on account of adjustment u/s 145A of the Act Rs.3,24,70,328/-. (iv) On the facts and circumstances of the case and in law the ld. CIT(A) has erred in deleting the addition on account of disallowance of customer loss Rs.2,12,37,000/-. 4. I.T.A. No.2217 of 2008 Effective grounds of appeal are as under: (Assessment Year 2005-06) (i) Disallowance of depreciation Rs.323892/-. On the facts and in the circumstances of the case, the ld. Commissioner of Income Tax (A s) erred in restricting depreciation by Rs.323892/- because of change in opening WDV. (ii) Late payment of PF and ESI Rs.29378/-. On the facts and in the circumstances of the case, ld. Commissioner of Income Tax (A s) erred i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.O. for estimation of expenses of Rs.251600/- incurred for earning exempt income and hence therefore, erred in disallowing the same u/s 14A of the I.T. Act. (iv) On the facts and in the circumstances of the case, the ld. CIT(A) has erred in confirming the action of the A.O. for not allowing technical know how fees of Rs.1336817/- which was allowed in a phased manner from A.Y.2003-04 onwards. 7. I.T.A. No.1595 of 2009 Effective grounds of appeal are as under: (Assessment Year 2006-07) (i) On the facts and in the circumstances of the case and in law, the ld. CIT(A)-1, Surat has erred in deleting G.P. addition of Rs.4,85,68,724/-. (ii) On the facts and in the circumstances of the case and in law, the ld. CIT(A)-1, Surat has erred in deleting the addition of Rs.6,17,466/- made on account of customer claim loss. 8. I.T.A. No.714 of 2010 Effective grounds of appeal are as under: (Assessment Year 2007-08) (i) On the facts and on the circumstances of the case and in law, the ld. CIT(A), Surat has erred in confirming the action of the A.O. by reducing subsidy of Rs.150878/- for the purpose of allowance of depreciation. (ii) On the facts and on the circum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... calculating the correct figure of disallowance u/s 14A. (iii) On the basis of facts and circumstances of the cases, the ld. CIT(A) has erred in not allowing carry forward of long term loss. (iv) On the basis of facts and circumstances of the cases, the ld. CIT(A) has erred in not directing the A.O. to reduce Rs.1336817/- towards technical know-how as per decision of Hon ble ITAT. 11. I.T.A. No.2569 of 2010 Effective ground of appeal is as under: (Assessment Year 2008-09) (i) On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting addition of Rs.1,16,38,333/- made on account of adjustment u/s 145A of the Act. 12. The common ground of appeal against subsidy received is raised by the both sides. The ld. DR submitted that the issue has been confirmed in favour of the revenue with the decision of ITAT in assessee s own case for A.Y. 2003-04. The ld. Counsel for the assessee has fairly conceded the issue in favour of the revenue. Accordingly, this ground of appeal is decided in favour of revenue and dismissed against the assessee in all the years. 13. The second ground of A.Y. 2004-05, first ground of A.Y. 2005-06, A.Y. 2006-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing that closing stock details are not verifiable. The work in progress details and finished stock details in closing stock are not verifiable and as per the decision of Hon ble Supreme Court in the case of British Paints (supra), the correct profit should be disclosed in the accounting method adopted by the assessee so that such verification should be possible. The A.O. has also stated that if it is not so then the books of accounts can be rejected in view of the decision of Hon ble Allahabad High Court in the case of Avdhesh Pratapsingh Abdul Rahman Brothers (supra) and in the case of Hari Shankar Gopal Hari (supra) wherein the Hon ble High Court stated that the absence of stock register and cash memo in a given situation may not per se lead to any inference that the accounts are false or incomplete. However, where the absence of stock register, cash memos etc. is coupled with other factors such as that the vouchers in support of the expenses and purchases are not forthcoming and the profits are low it may give rise to an inference that all is not well with the books and same cannot be relied upon to assess the income of the assessee. In the present case the G.P. rate of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd any material to show that these parties were either bogus or the expenses, purchases were inflated. 4.6.3 The issue of payment to specified persons covered by Section 40A(2)(b) also does not survive as the AO has not brought any material on record to show that the payment was excessive as stated above. Further the non-maintenance of quantitative record by itself would not be enough for rejecting the books of accounts because the GP rate of current year at 14.43% is higher than the GP rate of last year of 12.58%. The assessment for A.Y. 2003-04 was made u/s 143(3) by the AO vide his order dated 24.03.06 in which the GP rate of 12.58% was accepted and no GP addition was made. Hence there is no reason for making this addition. This ground of appeal is allowed and the GP addition is deleted. 15.1 More or less, similar findings were given in A.Y. 2005-06, 2006-07 and 2007-08 and additions were deleted by the CIT(A). 16. The ld. DR before us argued for A.Y.2004-05 that the assessee company had disclosed GP @ 14.43% as against GP @ 12.5% in immediate preceding year by applying the average GP rate @ 15.71% which is average of previous to previous year and next year. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the parties. It proves that the existence of the party and payments were made through cheques to these parties. The onus has been shifted on revenue and no material had been brought on record by the A.O. to substantiate the addition. The reconciliation of differences have been filed by the assessee before the CIT(A) and matter was remanded to the A.O. but no comment was made by the A.O. in his remand report. No specific payments to the sister concerned were excessive as claimed by the A.O. Non-maintenance of the quantitative record was not enough for rejection of books of account when G.P. was higher than immediate preceding year. Thus, the order of the CIT(A) is confirmed and revenue appeal is dismissed for A.Y. 2004-05. 18.1 The CIT(A) also deleted the addition in A.Y. 2005-06 and in A.Y. 2006-07 on similar findings but G.P. rate in these years were less marginally by 1.64%, 3.73% respectively compared to immediate preceding years which have been explained before the A.O. by the assessee with specific reasons. Therefore, the orders of the CIT(A) are confirmed on the basis of finding given in para 18 of this order. The revenue appeals are dismissed accordingly. 19. The thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,03,17,000/- is allowed 7.4.5 With respect to the three parties in respect of whom the assessee has claimed customer claim loss of Rs.9,20,000/-, it is seen that the assessee has said that these parties had lodged claim for the loss they had incurred in respect of the material supplied by the assessee. Consequent to this claim the assessee had to make payment to these parties as stated in the above table. The assessee has stated that in respect of Sin Fab Sales the sale was made in the earlier year on 1.6.03. The machine was valued at Rs.15 lacs. The assessee claimed Rs.1,65,000/- as loss which was due to the problem on primary heater. The assessee made the payment by cheque on 11.3.04 and since the amount was settled this year, this loss is allowable u/s 37 in the current year. In respect of Yashasvi Yarns Ltd. the assessee has stated that a machine worth Rs.20,64,000/- was sold to this party on 11.7.03 but due to defective yarn produced this party claimed la loss of Rs.1,80,000/- which the assessee had to pay by cheque dated 19.3.04. Hence, this loss is also allowable u/s 37 being business loss. With respect to Siddhi Vinayak Filaments the assessee has stated that a machine w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gued that the recovery on behalf of Himsons Overseas Pvt. Ltd. was made by the Bank of Baroda and State Bank of India and claimed that the sister concern had also claimed the bad debts in its books of account of the same amount. Thus, he requested to confirm the addition made by the A.O. under this head. 24. The ld. A.R. contended that the assessee is manufacturer of various types of textile machines sold throughout the country. Turnover earlier was Rs.250 crores. With competition it has gradually dwindled. Assessee is required to not only supply but erect the machinery. These are complex and mostly customized machines. Bad debts take place partly because buyer s financial condition is bad but mainly because there are complaints about some machines and their functioning and consequently amount is not paid on receipt of complaints the assessee does send technicians on site and sometimes customer gets satisfied and sometimes he does not get satisfied. He also relied on TRF Ltd. (323) ITR 397 on attempt made to recovery and all debits indisputably related to sale made. 25. We have perused the assessment order, CIT(A) order, submission of the assessee, paper book and heard argu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al work. The comparable rates were not available being an engineering work. Thus, the addition deleted by the CIT(A) is confirmed and the revenue appeal is dismissed. 29. The ground No.3 of the revenue in A.Y. 2007-08 is against deletion of addition on account of cessation of liability of Rs.37,25,695/-. The A.O. observed that the assessee had shown creditor of Rs.37,25,695/- more than three years. As per his finding the assessee had not able to establish the reasons that still these creditors are payable. He made addition of Rs.37,25,695/- u/s 41(1) of the I.T. Act. 30. The ld CIT(A) has deleted the addition by observing as under:- I have considered the submission made by the appellant and observation of the A.O. Admittedly all these creditors are old creditors and hence if the creditors are bogus they can only be added in the year in which they arose. The appellant has filed confirmation of its sister concern which total up to Rs.36,03,042/- out of Rs.37,25,695/-. Hence these are proved as subsisting liability. Further the addition cannot be made u/s 41(1) because the appellant has been showing these liabilities in the balance sheet. They have not been written off and hen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O. is directed to verify the payments made by the assessee on or before due date of return filed. The same may be allowed after verification. Thus, these grounds of appeal of all the years are set aside. 36. The next ground No.3 in A.Y. 2005-06 is against disallowance towards the late payment of TDS u/s 40(a)(ia) of the I.T. Act at Rs.36,22,957/-. The A.O. found that the assessee had made payment of TDS late, therefore, he disallowed Rs.1,29,51,109/-. 37. The CIT(A) partly allowed the appeal on this ground by observing as under:- 7.3 I have considered the submission made by the appellant and observation of the A.O. Since the payment of Rs.93,28,152/- has been made and TDS deducted in March, 2005, therefore, the amendment made by the Finance Act, 2008 as mentioned above clearly applies. The AO himself has stated the fact of deduction in TDS in March, 2005 in the table prepared by him in the assessment order. Therefore, the payment of Rs.93,28,152/- is clearly allowable in the current year. The balance payment out of disallowance of Rs.1,29,51,109/- is hit by the provision of section 40(a)(ia) as the TDS has been paid late and not within the financial year. As regards the all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2008-09 he also confirmed addition made under Rule 8D. 41. The ld. AR before us argued that provision u/s 14A is not applicable in his case and the CIT(A) was not justified in confirming the addition. The ld. DR argued that disallowance u/s 14A rightly confirmed by the CIT(A) and requested that the CIT (A) order may be confirmed. 42. We have perused the assessment order, order of the CIT(A) and heard the argument of both sides. The A.O. had disallowed reasonable expenditure u/s 14A of the I.T. Act. Therefore, we do not intervene in the findings of the A.O. for all the years. Thus, these grounds of appeals are dismissed in all the year. 43. Ground No.4 in A.Y. 2006-07 and in A.Y. 2008-09 and ground No.6 in A.Y. 2007-08 are against not directing the A.O. to reduce the technical know how expenses as per the direction of the Hon ble ITAT in A.Y. 2003-04. The A.O. had not given any finding in all the assessment years on this issue even then it was claimed before the A.O. during the course of assessment proceeding. The CIT(A) observed that this issue has not been emanating from the orders under appeal, so, the assessee should apply to the A.O. u/s 154 of the I.T. Act and also appe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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