TMI Blog2014 (9) TMI 158X X X X Extracts X X X X X X X X Extracts X X X X ..... are not based on the evidences produced by the Assessee during the course of the hearing before the AO as well as before the CIT(A) - the payment has been through cheque and TDS has been deducted - Statement of Shri Zoivant Cano was also recorded on oath and he has duly confirmed that he has received consultancy charges - The agreement need not be in writing - The situs of the services rendered must be proved - The proprietor of the firm is a Production Engineer and had experience in mining field - He has worked as Engineer in pelletizing plant of Mandovi Pellets Ltd. as shift incharge - He has also worked as manager of iron ore benefication plant in V.S. Dempo & Co. Pvt. Ltd. - He also started a Partnership firm providing screening and crushing services for iron ore under the name and style of M/s. P&R Screeners & Crushers – the order of the CIT(A) is upheld – Decided against Revenue. Restriction of labour charges – Held that:- As decided in assessee’e own case for the earlier assessment year, it has been held that disallowance was restricted to 10% of the total labour charges - no interference is called for in the order of CIT(A) restricting the disallowance to 10% of the la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not considering the fact that unpaid sundry creditor in the case of M/s. Vasavi Travels that remained outstanding in the books of the assessee and merely holding that the assessee had written off this amount subsequently without making any verification of the facts. 3. The Ld. CIT(A) has erred in deleting the additions of ₹ 45,59,627/- made on account of non-genuine business expenses paid to Shalini Enterprises on the ground that payment was towards consultancy charges on oral contract which the assessee could not prove with material facts. 4. The Ld. CIT(A) has erred in restricting the disallowance of labour charges to only 10% of the total unverifiable labour charges, whereas the addition made is specific in nature this year. 5. The Ld. CIT(A) has erred in deleting the entire addition on account of disallowance of site development expenses out of Total Site development expenses of ₹ 78.86 lakhs an amount of ₹ 11,37,761/- is not verifiable in the books and hence disallowed. 6. The Ld. CIT(A) has erred in deleting the additions of ₹ 44,96,024/- made on account of disallowance of closing stock when the assessee did not maintain any stock registe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that expiry of the period of limitation prescribed under the Limitation Act could not extinguish the debt but it would only prevent the creditor from enforcing the debt, has been well settled. If that principle is applied, it is clear that mere entry in the books of accounts of the debtor made unilaterally without any act on the part of the creditor will not enable the debtor to say that the liability has come to an end. Apart from that, that will not by itself confer any benefit on the debtor as contemplated by the section. This decision was re-affirmed by the Hon'ble Apex Court in its decision in the case of CCIT, Cochin v/s. Kesaria Tea Company Ltd. reported in (2002)254 ITR 434(SC). The appellant has also placed reliance on the decision in the cases of CIT v/s Nitin S. Garg, 2012-TIOL-294(GUJ) and DCIT v/s Alidhara Texpro Eng. Pvt. Ltd. (2011) 43 SOT 1. Thus, in view of the above, it is clear that the A.O was not justified in deciding that the liability to pay had ceased to exist, in absence of confirmation of intent by both the debtor and the creditor. Also, the appellant had himself written-off/back these amounts as on 31.03.2013 and disclosed it as income. Thus, in vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per the books of the Assessee was ₹ 40,98,864/-. The AO after noting the discrepancies in the details submitted by M/s. Shalini Enterprises, received in response to the notice u/s 133(6), with the details filed by the Assessee, issued a show cause to the Assessee which was complied by the Assessee by explaining that they are paid consultancy charges for inspection for grading, blending, planning of plot and logistics management of iron ore whereas M/s. Shalini Enterprises took it as professional fees. The difference is that of nomenclature. The Assessee produced Shri Zoivant Pai Cano, proprietor of M/s. Shalini Enterprises. Statement of Shri Zoivant Cano was recorded. The AO was not satisfied and disallowed the sum of ₹ 45,59,627/- treating it to be the payment made for sham transaction. The Assessee went in appeal before the CIT(A). CIT(A) after going through the submission of the Assessee as well as the statement recorded by the AO of Shri Zoivant Cano took the view that the addition made by the AO was not based on proper appreciation of the facts and the genuineness of the transaction has been proved beyond doubt by observing as under : 6.4 I have gone through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not a fit ground which warrants our interference. We, therefore, confirm the order of CIT(A). 5. Ground no. 4 relates to restricting the disallowance of labour charges to only 10% of unverifiable labour charges. The facts relating to this ground are that the AO noted that in the books of M/s. Action Group Associates, labour charges of ₹ 11,14,000/- was recorded while a sum of ₹ 1,29,48,215/- was debited as business expenses in the books of M/s. Warrior Minerals. The AO noted the defects in the payment voucher submitted for verification and ultimately, he disallowed labour charges of ₹ 1,18,11,076/- as unverifiable expenses. The Assessee went in appeal before the CIT(A). CIT(A) noted that under similar circumstances disallowance was restricted during the A.Y 2009-10 in the case of the Assessee by the Income Tax Appellate Tribunal @ 10% of the total expenses claimed by the Assessee. CIT(A), therefore, respectfully following the order of the ITAT directed the AO to disallow 10% of the total labour charges of ₹ 1,40,62,215/- amounting to ₹ 14,06,222/-. 5.1 We have heard the rival submissions and carefully considered the same. It is not denied by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness premises by the assessee, a tenant, would be allowable irrespective of any agreement to the effect with the lessor u/s 30(a)(i) as well as Sec. 37. Reliance was also placed on the decision of CIT vs. Kusum Products Ltd., 175 ITR 557 for the proposition where the lessee of a factory in fulfilment of his obligation to maintain machinery and plant and deliver it in good condition, incurred expenses in repairing or replacing the machinery or plant, it would be deductible as repairs and is a revenue expenditure. Reliance was also placed on the following decisions also : i) CIT vs. Laxmi Talkies, 275 ITR 125 (Guj.) ii) CIT vs. Dr. A.M. Singhavi, 302 ITR 26 (Raj.) iii) CIT vs. Madras Auto Services (P.) Ltd., 233 ITR 468 (SC) CIT(A) ultimately deleted the addition by observing as under : 9.4.2 In view of the aforesaid discussion, we are of the view that the authorities below were not correct in holding that the expenditure incurred by the Assessee was capital expenditure. We, accordingly, set aside the order of CIT(A) and delete the disallowance. In the result, this ground of appeal is allowed. Respectfully following the order of the Hon. ITAT, the A.O is directe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed or brought into existence an advantage of an enduring character. Similarly, the Hon'ble Bombay High Court in the case of CIT vs. Talathi and Panthaky Associates P. Ltd., 343 ITR 309 took the view that the Assessee, tenant in a premises contributed for the reconstruction of the premises in lieu of continuing as tenant at the same rent, the expenditure so incurred by the Assessee were not held to be expenditure of capital nature. In our opinion, no enduring benefit has been derived by the Assessee by incurring the expenditure for site development as without incurring these expenses, the Assessee would not have been able to carry on its business. The expenditure, in fact, was necessary and the commercial expediency demands such expenditure to be incurred. The fact that the Assessee has handed over the possession of the land after the expiry of 5 years itself proves that the Assessee has not derived any enduring benefit out of this. The expenditure so incurred, in our opinion, cannot be regarded to be a capital expenditure. We have also gone through the decisions of Ballimal Naval Kishore vs. Commission of Income Tax, 224 ITR 414. In this decision, we noted that the issue relate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GNG Exports 53510 1214.5 3126.35 Ahiliabia Sardessai 4936 2100 8062.35 Phulchand Exports 7071 1818.54 991.35 Value of closing stock ₹ 20,81,835 (991.35 MT @ ₹ 2100/-) Table showing closing stock value of Action Group Associates Party Purchase Quantity Purchase Price Sale Quantity Sale Price Balance (Quantity MT) Opening Stock 51795.27 341.28 51795.27 MMPL 2436.89 9335 49358.38 G.N. Agarwal 2524.04 1431.8 51882.42 Inter Transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 2100/-. Thus, the closing stock has been undervalued by an amount of ₹ 17,43,507/-. Total undervaluation is worked out at (64,310/- + 17,43,507/-) ₹ 18,07,817/-. Addition to the extent of ₹ 18,07,817/- is confirmed and balance is deleted. This working has been accepted by the learned AR of the appellant. The A.O. to give benefit in opening stock in the subsequent year. 7.1 We have heard the rival submissions and carefully considered the same alongwith the order of the tax authorities below. We noted that the Assessee has segregated the stock to what extent it belonged to a particular supplier and has valued the same on that basis. CIT(A) has duly verified the same and noted some mistake in the working of the Assessee. The stock was accordingly re-valued. This method has been consistently followed by the Assessee has not been disputed by the ld. DR. In view of this fact, we confirm the order of CIT(A) sustaining the addition to the extent of ₹ 18,07,817/- out of ₹ 44,96,024/-. The ground taken by the Revenue, in our opinion, is also misconceived as CIT(A) has not deleted the sum of ₹ 44,96,024/-. He has sustained the addition to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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