TMI Blog2015 (1) TMI 965X X X X Extracts X X X X X X X X Extracts X X X X ..... he books and resultantly deleting the addition of ₹ 1.19 crore on this score. - Decided in favour of assessee. Unaccounted receipt of FDRs - CIT(A) deleted the addition - Held that:- Once the receipt of deposits amounting to ₹ 44 lac from the six depositors is held to be genuine, the consequent disallowance of interest amounting to ₹ 1,94,710/- made by the Assessing Officer would automatically stand deleted. We, therefore, uphold the impugned order in deleting the addition of ₹ 45.94 lacs. - Decided in favour of assessee. Capital subsidy on sales tax - CIT(A) deleted the addition - Held that:- As the nature of subsidy in the present facts and circumstances is undisputed, being towards the setting up of unit in remote and rural areas, the natural conclusion which therefore follows is that this subsidy is a capital receipt and not chargeable to tax. - Decided in favour of assessee. Apportionment of electricity expenses and Directors’ remuneration - Held that:- It is observed that the assessee was consistently apportioning electricity expenses between factory premises and office building in the ratio of number of employees in the works and in administr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - Decided in favour of revenue. Insurance expenses - CIT(A) deleted the addition - Held that:- As observed from the assessment order that the assessee did make a claim for deduction of insurance expenses. Not only that, the assessee also submitted before the AO, vide its reply dated 23.2.07 that the amount was paid to Bajaj Allianz and General Insurance Company Ltd., for a Standard Fire Policy for the calendar year 2005. When the facts are crystal clear that the assessee did make a claim for deduction of ₹ 4.93 lac, the view point of the ld. CIT(A) cannot be accepted unless the assessee shows that no deduction was claimed for the amount disallowed. Since necessary details were not instantly available with the ld.AR, we are of the considered opinion that it would be in the fitness of things if the impugned order on this issue is set aside and the matter is restored to the file of AO for a fresh determination. - Decided in favour of revenue for statistical purposes. Non deduction of TDS on freight and forwarding expenses and on the amount of printing and stationery - CIT(A) deleted the addition - Held that:- In view of the fact that the assessee did deduct tax at source o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e characterized as user for non-business purpose and, hence, no addition can be made. There cannot be any non-business user in so far as a company assessee is concerned. In view of the above discussion, we find that the ld. CIT(A) has taken an unimpeachable view in deleting disallowance of 20% of vehicle running and maintenance expenses for non-business purpose. - Decided in favour of assessee. Adiition entertainment expenses - CIT(A) deleted the addition - Held that:- All the payments have been made through cheques and the assessee has mentioned the name and designation of the customer who was taken for meals, etc. In our considered opinion, there can be no reason for sustaining this disallowance. - Decided in favour of assessee. Addition on account of demurrage charges - CIT(A) deleted the addition - Held that:- This amount represents excess freight charged by a customer M/s Mid West Truck Auto Parts, which was in turn, recovered by bank. Complete evidence and explanation in this regard was filed before the AO as well, who did not offer any adverse comment on the same. As this amount is nothing, but, excess freight charges, it cannot be treated as penal in nature warranting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fused to accept the assessee s explanation for the reduction in the gross profit rate. Rejecting the books of account under section 145(3) of the Act, the Assessing Officer adopted the gross profit rate of the preceding year at 18.52%. This resulted into the making of a G.P. addition of ₹ 1.19 crore. The learned CIT(A) got convinced with the assessee s submissions and ordered for the deletion of addition. 4. After considering the rival submissions and perusing the relevant material on record, it is observed that the assessee filed certain additional evidence before the learned CIT(A), who chose to seek remand report from the Assessing Officer, a copy of which is available on pages 88 to 92 of the department paper book. Coming back to the merits of this ground, it can be seen that the Assessing Officer has assigned no reason for rejecting the books of account other than a decline in the gross profit rate. It is a matter of record that the assessee is engaged in a manufacturing activity and has maintained all the stock registers required for the purposes of the payment of excise duty. The Assessing Officer has not controverted the quantity or value of the closing and opening ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re bogus: S. No. Name of the persons Amount in Rs. 1. Rajesh Talwar 1,50,000/- 2. Geeta Talwar 10,00,000/- 3. Rajesh Talwar HUF 1,50,000/- 4. Raghav Gupta 10,00,000/- 5. Sameer Gupta 12,00,000/- 6. Meera Gupta 9,00,000/- 7. Tushar K. Chopra 10,00,000/- 8. Tarun Talwar 35,000/- 9. Sameena Talwar 40,000/- Total 54,75,000/- 6. The assessee had also claimed deduction in respect of interest paid on such FDRs to its depositors. The Assessing Officer made a further addition of ₹ 1,94,710/-, being the amount of interest paid in respect of about the six credits. This led to the making of a total addition of ₹ 45.94 lacs. The learned CIT(A), after considering the remand report from the Assessing Officer, got convinced with the assessee s submissions a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d about sum in cash in the bank account of the depositor before the issuance of cheque to the assessee company for the amount of loan. Copy of return of this depositor for the year under consideration is also available on page 435 of the paper book. The depositor also filed his Trial balance along with the return of income which divulges the amount of FDR made with the bank. It is not the case of the Revenue that such deposit has been held as not genuine in his assessment. In view of the above overwhelming evidence, supporting the genuineness of transaction along with the identity and capacity of the depositor, we are of the considered opinion that the learned CIT(A) was right in deleting this addition. 9. Next depositor is Mrs. Gita Talwar, who deposited a sum of ₹ 10 lac with the assessee company. A copy of her confirmation is available on page 397 of the paper book which indicates that she deposited this sum of ₹ 10 lac in two phases, namely, ₹ 7 lac vide cheque dated 06.04.2014 and ₹ 3 lac again vide cheque dated 14.07.2014. Her bank statement is available on pages 454 and 457 of the paper book, from which it can been seen that there are withdrawals f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ti Bank. A perusal of the bank statement of this depositor again shows that most of the transactions are through cheques and there is no cash deposit in his bank account near the issuance of the cheque. This depositor is also assessed to tax inasmuch as a copy of his return is available on page 404 of the paper book. In view of the above evidence, we are satisfied that the genuineness of the transaction of this deposit along with the identity and capacity of the depositor, stand proved. We, therefore, uphold the impugned order deleting this addition. 12. The next depositor is Sh. Sameer Gupta, whose confirmation is available on page 402 of the paper book. This deposit of ₹ 12 lac was made by him through cheque dated 13.12.2004. A copy of his pass book is available on page 403 of the paper book, from which it can be seen that a cheque for ₹ 12 lac was issued in favour of the assessee. Again most of the transactions in his bank account are made through cheques and there is no cash deposit in his bank account before making of the deposit with the assessee company. These facts prove the genuineness of the transactions. He is also assessed to tax having filed his return o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the judgment of the Hon ble Supreme Court in the case of Sahney Steel and Press Works Ltd. Vs. CIT, 228 ITR 253. The ld. CIT(A) ordered for the deletion of this addition. 16. We have heard the rival submissions and perused the relevant material on record. The relevant factor for decision as to whether subsidy is a capital or a revenue receipt, is its nature and object. If some subsidy is given for encouraging the industries for setting up units in the remote or rural areas etc., then such subsidy assumes the character of a capital receipt. On the other hand, if subsidy is given for enabling an assessee to run its business more profitably, then it would amount to an operational subsidy chargeable to tax. It is clear from the assessee s submissions reproduced in the assessment order that the subsidy was given to the assessee as a compensation for setting up its unit in remote rural areas. The nature of such subsidy has not been disputed by the AO. As the nature of subsidy in the present facts and circumstances is undisputed, being towards the setting up of unit in remote and rural areas, the natural conclusion which therefore follows is that this subsidy is a capital receipt and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rival submission and perusing the relevant material on record, it is observed that the assessee was consistently apportioning electricity expenses between factory premises and office building in the ratio of number of employees in the works and in administration office. This practice adopted by the assessee, has not been disturbed by the Revenue in the past. Once a particular accounting practice is consistently followed, then there is no rationale in disturbing the same. The finding of the learned CIT(A) in this regard, has remained controverted by the ld. DR. The Directors remuneration is an item of administrative expenses and cannot be considered as a part of trading account so as to qualify as a direct expense for the production of expenses. It is but natural that only the expenses in the trading account, which are otherwise direct in nature, can be considered in valuing the closing stock. No expense of the administration nature, which falls in the Profit and loss account can be considered for valuing the closing stock. In our considered opinion, there is no infirmity in the impugned order deleting this addition. Even if we go with the viewpoint of Revenue that the apporti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record, we find from the remand report that the AO has not disputed the amount of VR expenses for the two years in respect of which the ld.CIT(A) granted the relief. The AO simply stood by the action taken by him in the assessment order. To view of the ld. CIT(A) in allowing the relief is, therefore, upheld. As regards the other amount, we find that section 35DDA came to be inserted by the Finance Act, 2001 w.e.f. 1.4.2001 providing deduction under VRS @ 1/5 of the amount so paid in five equal installments. The claim of the assessee for making deduction for a sum of ₹ 1,06,210/- in respect of the year 2000-01 is clearly impermissible in view of section 35DDA coming into force later on. Such expenditure assuming the character of prior period expenses for the year in question for which the liability got crystalised and stood discharged in the earlier year cannot be allowed as deduction in the current year. We, therefore, uphold the impugned order on this score. Both the cross grounds are dismissed. 21. Ground No.6 of the Revenue s appeal is against the deletion of addition of ₹ 2,36,150/- on account of unascertained liability in the form of warranty claimed. The asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ld. CIT(A) accepted the assessee s claim that a sum of ₹ 4.93 lac was not claimed as deduction by the assessee. He, therefore, deleted the addition in entirety. 25. After considering the rival submissions and perusing the relevant material on record, it is observed from the assessment order that the assessee did make a claim for deduction of insurance expenses. Not only that, the assessee also submitted before the AO, vide its reply dated 23.2.07 that the amount was paid to Bajaj Allianz and General Insurance Company Ltd., for a Standard Fire Policy for the calendar year 2005. When the facts are crystal clear that the assessee did make a claim for deduction of ₹ 4.93 lac, the view point of the ld. CIT(A) cannot be accepted unless the assessee shows that no deduction was claimed for the amount disallowed. Since necessary details were not instantly available with the ld.AR, we are of the considered opinion that it would be in the fitness of things if the impugned order on this issue is set aside and the matter is restored to the file of AO for a fresh determination. If it is found that the assessee claimed deduction for the disallowed portion of insurance expenses th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t source on the freight payments made to it. Page 556 is a certificate in Form No.16A issued to M/s Parnami Goods Carriers Pvt. Ltd. Page 558 is a copy of certificate in Form No.16A issued to M/s New India Roadways. In the like manner, TDS certificates have been issued in respect of the parties for which the AO has made out a case that no deduction of tax at source was made. When all these details were forwarded to the AO in remand proceedings, he conspicuously remained silent. In view of the fact that the assessee did deduct tax at source on the freight payments made to the above parties and such tax was duly deposited in the exchequer, we are of the considered opinion that the provisions of section 40(a)(ia) are not triggered. 29. As regards non-deduction of tax at source on the amount of printing and stationery, we find that the details of such expenses are available on pages 376 onwards of the paper book. From such details, it can be seen that these are for purchase of printing and stationery and there is nothing like any works contract having been carried out by the supplier. These are small amounts comprising of purchase of papers for balance sheet, material dispatch regis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the customers abroad. The AO in the remand report chose not to adversely comment on this evidence. In view of these facts, it is clear that such foreign travelling expenses were incurred for the purpose of the assessee s business and there is no warrant for making any disallowance. The impugned order is upheld on this score. 34. The next ground of the Revenue s appeal is against the deletion of addition of ₹ 2,84,193/- out of vehicle running and maintenance expenses @ 20% for non-business purpose. The ld.CIT(A) ordered for the deletion of the addition. 35. After considering the rival submissions and perusing the relevant material on record, we find that the Delhi Bench of the Tribunal in DCIT vs. Haryana Oxygen Ltd. (2001) 76 ITD 32 (Del), has held that the company is a separate legal entity distinct from its directors and the use of vehicles by the directors cannot be characterized as user for non-business purpose and, hence, no addition can be made. The Hon ble Gujarat High Court in Sayaji Iron and Engineering Company vs. CIT (2002) 253 ITR 749 (Guj), has held that there cannot be any non-business user in so far as a company assessee is concerned. In view of the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ils. 41. The last ground of this appeal is against the deletion of addition of ₹ 1,29,300/- on account of sales and business promotion expenses. The AO noticed that the sales and promotion expenses included a sum of ₹ 1.95 lac towards Sale promotions, ₹ 8,855/- towards Business promotion and ₹ 82,227/- towards Gifts and articles. On perusal of the details filed by the assessee in this regard, the AO noticed that the first and second items were in the nature of gifts, lunch, dinner and entertainment incurred mostly in cash. Onefourth of such expenses was disallowed. As regards the third item, he took it as representing donations/kanyadans to the tune of ₹ 32,654/- and, a further sum of ₹ 45,450/- towards gift of gold set. These two amounts totaling to ₹ 78,104/- were also added. This resulted into a total addition of ₹ 1,29,300/-. The ld. CIT(A) deleted this addition. 42. Having heard the rival submissions and perused the relevant material on record, we find from pages 353A onwards of the paper book that the assessee furnished details of such expenses before the AO vide its letter dated 22.11.07. Gold items were distributed on th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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