TMI Blog2014 (9) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... the capital gain by working out the indexed market value - Except the letter dated 31-3-1981, no other materials has been produced before the authorities - the order passed by the ITAT in setting aside the order passed by the CIT (A) wherein the Commissioner has directed the Assessing Authority to reconsider the matter is contrary to law - The Appellate Tribunal has also not examined the market value of the assets as on 01-04-1981 the order passed by the Appellate Tribunal cannot be sustained - The matter has to be re-examined by the Assessing Authority by working out the indexed market value in respect of rosewood and silver oak trees – Decided in favour of revenue. Value of timber lying with the Govt. for auction deleted – Held that:- The contention of the assessee is that merely transmitting the wood to the auction depot would not entitle it to recognize the income from the sale of rosewood in its book, because up to that stage it cannot claim such income has received or a right entitling it to receive has been accrued – the FAA has appreciated this aspect in right perspective, because no right was accrued to the assessee by the time the wood was handed over to the Govt. Depo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ok of the vehicles, exhibiting their exclusive usage – the FAA has rightly observed that possibility of users other than for business purpose cannot be ruled out - 10% disallowance out of the total expenses cannot be termed on higher side – Decided against Assessee. Miscellaneous expenditure disallowed – Entertainment expenses – Held that:- Except stating that the expenditure was incurred for the purpose of business the appellant company was unable to furnish any further details in respect of this expenditure - the AO and the addition made by the AO to the extent of ₹ 5.00 lakhs is confirmed – claim of any expenditure can be allowed to an assessee, if it is proved on the record that expenditure was incurred wholly and exclusively for the purpose of the business - There is a lacuna in the claim made by the assessee - It could not substantiate all the expenses with supporting vouchers - AO has observed that during the course of hearing, defects were noticed and pointed out – the order of the CIT(A) is upheld – Decided against assessee. - ITA No.1108/Bang/2012, ITA No.1113/Bang/2012 - - - Dated:- 28-8-2014 - Shri Rajpal Yadav And Shri Jason P. Boaz,JJ. For the Petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that Rosewood, Silver Oak and Eucalyptus are maintained as shade trees for the coffee bushes. Shade trees are absolutely essential for the protection of coffee bushes. It is not possible to grow coffee in India without the necessary shade trees. Shade trees existing in a coffee estate are as much impiortant as the coffee bushes which yield the coiffee crop. The Hon'ble Karnataka High Court in the Appellant's own case reported in 76 ITR 29 has held that shade trees are capital assets as much as the coffee bushes. We submit that the cutting of the shade trees happens under the following scenarios:- S. No Timber Scenario 1 Rosewood Only wind fallen, dead wood and old trees are cut 2 Silver Oak Eucalyptus and Cut based on shade management policy 3.3 Nature of various shade trees and treatment of sale proceeds of such trees for tax purposes is tabulated below:- 3.4 In his Remand report dated 27.10.2011, the present Assessing Officer i.e. DCIT Circle 12(4) Bengaluru strongly supported the sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determining the rate of wood. The Hon'ble High Court has observed that it is not discernible whether this letter is a genuine or not. Therefore, Hon'ble High Court has remitted the issue back to the file of the Assessing Officer. The learned CIT (A) in the finding extracted (supra) has followed the order of the ITAT in assessment years 2003-04 2004-05. However, it was brought to our notice that in assessment years 2006-07 to 2008- 09, this issue had come up before the Tribunal and the Tribunal has set aside the issue to the file of the Assessing Officer following the decision of the jurisdictional High Court. The observation of the Tribunal read as under: 3.1.6 We have carefully considered the rival submissions, perused the relevant materials on record and also the case laws on which the learned AR had placed reliance. At the outset, we would like to point out that the learned CIT (A) had, in conformity with the findings of the earlier Bench of this Tribunal in the assessee's own case for the AYs 2003-04 and 2004-05 (supra), directed the AO to re- compute the income from LTCG from the sale of timber taking the cost of acquisition as 70% of the sale value of all t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ideration being similar which has been dealt with by the Hon'ble Jurisdictional High Court (supra) in the assessee's own case, we are of the considered view that the present issue also requires to be re-examined by the AO by working out the indexed market value in respect of rosewood and silver oak trees as ruled by the Hon'ble Court (supra). To facilitate the AO to carry out the directions of the Hon'ble Court, the issue (ground No.1) raised for the AYs 2006-07, 2007-08 and (ground No.2) 2008-09 respectively are restored on the files of the AO. It is ordered accordingly. 3.1.8 With regard to the disallowance of expenses of ₹ 3.28 lakhs being 10% of ₹ 32.83 lakhs for the AY 2006-07, we would like point out the sale consideration of timbers of ₹ 32.83 lakhs has been arrived at by the assessee on the basis of F.M.V of the trees as on 1.4.1981. The FMV of trees as on 1.4.1981 has since been restored on the files of the AO for re-examination on the ruling of the Hon'ble High Court (supra), this issue is also restored on the file of the AO for fresh look and to take appropriate action, keeping in view the ruling of the Hon'ble Court (supra). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same to the Dy. Conservator of Forest. Copy of this note is being marked to the assessee. The Dy. Conservator of Forest would scrutinize the sale details and forward the same to the Chief Conservator of Forest for issue of letter of credit in favour of the timber owner. The Chief Conservator of Forest after scrutiny of sale details would issue letter of credit to the Dy. Conservator of Forest directing him to issue a cheque to the timber owner. Thus according to the assessee, a right to receive was accrued to it on fulfillment of these proceedings. It was also pointed out before the learned CIT (A) that the Institute of Chartered Accountants of India had issued accounting standard. AS-9.4 provides recognition of Revenue in such type of situation which read as under: An essential criterion for the recognition of revenue is that the consideration receivable for the sale of goods, the rendering of services or from the use by others of enterprise resources is reasonably determinable. When such consideration is not determinable within reasonable limits, the recognition of revenue is postponed . The contention of the assessee is that merely transmitting the wood to the auction de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has observed that the expenditure was incurred by the assessee in normal course of business and no disallowance ought to have been made. 14. The learned DR relied upon the order of the Assessing Officer, whereas the learned Counsel for the assessee submitted that it has complete details. The Company has offered an income of more than ₹ 8.00 crores, its accounts cannot be in-complete and it cannot afford non maintenance of accounts. The Assessing Officer in a sweeping way has observed that no supporting documents were submitted by the assessee. What documents he called for and which was not submitted by the assessee, then only the learned Assessing Officer can record such type of observation. 15. We have duly considered the rival contentions and carefully gone through the record. From the findings of the Assessing Officer extracted (Supra), it is nowhere discernible what specific defect was noticed by him in the details of expenditure maintained by the assessee. In a very vague way, he observed that no supporting material was available. The contention of the assessee is that payments were made on the basis of the invoices raised by the Contractor. Had the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e authority has erred in confirming the disallowance. The assessee has offered an income of ₹ 8.22 crores. There could not be any reason to inflate the expenses of such a small nature in one of the Division. The Assessing Officer in the findings extracted (Supra) failed to assign any reason, how the claim made by the assessee is not reliable. Merely loss has occurred in such a Division, does not mean that such a loss is to be disallowed by just disbelieving the accounts. No reasons are discernible either in the assessment order or in the order of the CIT (A). Therefore, we allow this ground of appeal and deleted the disallowance. 20. Ground No.3: In this ground the assessee has challenged the confirmation of disallowance out of marketing expenses at ₹ 25.00 lakhs. The brief facts of the case are that the assessee has incurred loss of ₹ 66,16,072/- in the Marketing Division. The learned Assessing Officer has directed the assessee to explain the loss. The assessee has explained that a loss of ₹ 4.98 crores was incurred in financial year 2003-04, ₹ 3.50 crores in financial year 2002-03 and ₹ 2.80 crores for assessment year 2001-02. The expenses w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision of section 37. The assessee has to demonstrate that the expenditure is wholly (representing the quantum) and exclusively (representing the object) for the business only. The learned Assessing Officer has pointed out that under the stockists incentive, the assessee had shown expenditure of ₹ 13,94,480/-. He has made analysis of the total expenditure on page No.27 of the assessment order. He observed that in the project AD-Mr.Bean, stockists incentive had been incurred at ₹ 22,59,328/-. This is part of the expenditure meant for exclusive head, then how it is coming under the head of expenses ( other marketing expenses ) amounting to ₹ 41,88,713/-. Thus from the findings of the Assessing Officer extracted (supra) it is discernible that the details of expenditure are not directly relatable to each head. The learned Assessing Officer has bifurcated the expenditure claimed by the assessee under various heads and then pointed out why expenses meant for a particular head has been debited in a different head namely other marketing expenses . The assessee failed to give any reply to this aspect. The learned first appellate authority has re- appreciated and observe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icles, exhibiting their exclusive usage. Therefore, the learned first appellate authority has rightly observed that possibility of users other than for business purpose cannot be ruled out. In such situation, 10% disallowance out of the total expenses cannot be termed on higher side. We do not find any error in the order of the CIT (A), this ground is rejected. 25. In Ground No.5 the assessee is impugning the confirmation of disallowance at ₹ 5.00 lakhs out of miscellaneous expenditure and in Ground No.6, it is impugning disallowance of ₹ 91,394/- out of the entertainment expenses. The order of the learned CIT (A) on both these issues read as under: 13.7 The Assessing Officer also noticed that the Toopran Division of the appellant company had incurred other miscellaneous expenses of ₹ 2,67,915/- and office miscellaneous expenses of ₹ 19,60,110/-. As the appellant was unable to furnish complete details, the Assessing Officer disallowed a sum of ₹ 5 lakhs out of this expenditure claimed and added to the income returned by the appellant. 13.8 The A.R of the appellant submitted that the Assessing Officer has disallowed the other miscellaneous exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... miscellaneous expenses . The learned Assessing Officer has called for the break up of these expenditures. The break-up was given under six heads. Out of that a sum of ₹ 3,14,177/- represented software and development expenses and ₹ 7,400/- as staff training expenses. Rest of the expenditures is factory miscellaneous expenses, office miscellaneous expenses, other miscellaneous expenses and subscription and membership of the club. The Assessing Officer has examined these details and then arrived that these are not exclusively for the business purpose. He made adhoc disallowance. Similarly under the head, entertainment expenditure, the assessee had incurred a sum of ₹ 9,13,946/-. The learned Assessing Officer has considered the break up of the total expenditure and thereafter disallowed 50% of the entertainment expenditure. The learned Cit (A) has confirmed the action of the Assessing Officer of disallowing ₹ 5.00 lakhs out of other miscellaneous expenses and office miscellaneous expenses. She confirmed disallowance of 10% of the total entertainment expenditure. 27. Before us the learned Counsel for the assessee submitted that these are expenses incurred for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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