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2015 (3) TMI 927 - ITAT AHMEDABAD

2015 (3) TMI 927 - ITAT AHMEDABAD - TMI - Inclusion of CENVAT credit for valuing the closing stock - CIT(A) deleted the addition - Held that:- CIT(A) while deleting the addition has noted that if adjustment on account of CENVAT credit is made to the closing stock then corresponding adjustment will have to be made to the opening stock, purchases and sales and on the basis of statement annexed to the tax audit report, he has given a finding that there would be no impact on the final profit. CIT(A) .....

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d disallowance - Held that:- In view of the undisputed fact that the Employees share of contribution of ESIC was paid after the prescribed due date, and following the decision of Hon'ble Gujarat High Court in the case of Gujarat State Road Transport Corporation (2014 (1) TMI 502 - GUJARAT HIGH COURT), and in the absence of any contrary binding decision, we are of the view that the AO was justified in disallowing the belated payments - Decided in favour of revenue.

Disallowance ma .....

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e assessee. - Decided in favour of assessee for statistical purposes.

Disallowance of travelling expenses - AO while disallowing the expenses has noted that the expenses were incurred on account of trip by cruise ship by director and his family. The aforesaid finding of AO has not been contorverted by ld. A.R. We find that CIT(A) while restricting the addition has noted that AO while disallowing the expenses had not even mentioned the countries visited by the directors nor had analyze .....

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ore we do not find force in the submission of ld. AR to restrict the disallowance at 25%. It is also a fact that against the partial relief given by ld. CIT(A), Revenue is not in appeal. Before us, Ld. AR has not brought any material to controvert the findings of CIT(A) and therefore we find no reason to interfere with his order and thus this ground is dismissed. - Decided against assessee. - ITA No. 2335/Ahd/2011, C.O. No. 231/Ahd/2011 - Dated:- 20-3-2015 - Shri Mukul Kr. Shrawat And Shri Anil .....

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urn of income for A.Y. 2008-09 on 29-09-2008 declaring total income at ₹ 51,96,160/-. The case was selected for scrutiny and thereafter the assessment was framed u/s. 143(3) vide order dated 29-11-2010 and the total income was determined at ₹ 83,36,020/-. Aggrieved by the order of AO, Assessee carried the matter before CIT(A) who vide order dated 01- 07-2011 granted partial relief to the asssessee. Aggrieved by the aforesaid order of CIT(A), Revenue is now in appeal before us and Ass .....

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thin the time limit prescribed in the ESI Act. The Ld. CIT(A) did not appreciate the fact that employee s contribution was not covered u/s. 43B but it was covered under the provisions of section 36(1)(va) r.w.s. 2(24)(x). On the other hand, the grounds raised by the Assessee in its CO read as under:- 1 The learned CIT(A) has erred in confirming the disallowance of Rs.l,39,210/-made by the AO u/s. 14A r.w,r. 8D on the ground that on introduction of Rule 8D w.e.f. A.Y.2008-09, there is no legal ob .....

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ught to have deleted the impugned addition of ₹ 1,39,210/-. 2. The learned CIT(A) has erred in confirming the addition on account of disallowance of medical expenses of ₹ 2,33,994/- on the ground that the same has not been incurred wholly and exclusively for the purpose of business. In view of facts of the case and submissions filed, the Id. CIT(A) ought to have deleted the impugned addition of the.2,33,994/-. 3. The learned CIT(A) has erred in partly confirming the addition on accou .....

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g only 30% of the total disallowance made by the AO. We first take up Revenue s appeal in ITA No. 2335/Ahd/2011 First ground is with respect to non-inclusion of CENVAT credit for valuing the closing stock. 4. During the course of assessment proceedings, AO noticed that Assessee had not included the CENVAT credit for valuing the closing stock. The assessee was asked to show cause as to why the closing stock not be valued as per the provisions of section 145A to which assessee inter alia submitted .....

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he submissions of the assessee deleted the addition made by the AO by holding as under:- 6.3. I have gone through the assessment order, provision of Section 145A and contention of the AR of appellant. Section 145A does not require to add to the value of closing stock, balance in CENVAT credit account which is basically in nature of advance recoverable in cash or kind. Further, I agree with AR of the appellant that there would be no impact on Profit or Loss irrespective of the method followed. Fu .....

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included as there would be increase in profit. It only implies that such payment on purchases inventory should be included. But as can be seen from the computation reproduced by the appellant on the basis of guidelines of ICAI, after including such cost in purchase, the same has to be deducted from cost of goods sold as it in facts reduces the cost. Further, as per provision of Section 145A, adjustment of duty tax cess etc. is not required to be made only in closing stock but also in Opening Sto .....

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ission made by the assessee and ratio established in Bharat Bijlee Limited Vs Additional CIT (ITA NO.6410/MUM/2008(A.Y.2005-06), Ashwin A Shah V ACIT [2010] 1 ITR (Trib.) 356 (Ahd) and Assistant CIT Vs Time Packaging Limited [2008] 26 SOT 216 (Mum) and alternate argument put forth by the AR of the appellant, I direct AO to delete the said addition of ₹ 21,67,694 being closing balance of CENVAT credit to the value of closing stock. 5. Aggrieved by the aforesaid order of CIT(A), Revenue is n .....

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submitted that if the assessee includes the excise duty to the closing stock then corresponding addition will have to be made to the opening stock, purchases and consumption and thus there would be no impact to the Profit and Loss account. He also relied on the decisions cited before CIT(A) and thus supported the order of CIT(A). 7. We have heard the rival submissions and perused the material on record. The issue in the present case is about the inclusion of CENVAT credit to the value of closin .....

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of Ashwin Shah vs. ACIT. Before us, Revenue has not brought any material on record to controvert the findings of the CIT(A) nor has brought any contrary binding decision in its support. We therefore find no reason to interfere with the order of CIT(A) and thus this ground of Revenue is dismissed. Ground No. 2 is with respect to deleting of disallowance of employee s contribution to ESIC. 8. During the course of assessment proceedings and on perusing the tax audit report, AO noticed that Assesse .....

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s of the assessee and following the decision in the case of Dynamic Industries Ltd ITA No. 1545/Ahd/2005 dated 23-03-2009, decision in the case of Gujarat Container Ltd ITA No. 2609/Ahd/2008 dated 03-03-2009 and other decisions, deleted the addition. Aggrieved by the order of CIT(A), Revenue is now in appeal before us. 10. Before us, Ld. DR at the outset submitted that the belated payment of employee s contribution of PF and ESI is covered in favour of the Revenue by the decision of Hon ble Guja .....

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Court in the case of Gujarat State Road Transport Corporation in ITA No 637/AHD/20I3 has concluded that where sum received by Assessee from any of his employees as contribution to Provident Fund and/or ESI Fund was not credited by Assessee to employee s account in relevant fund or funds on or before due date as per explanation to s. 36(1)(va), the Assessee shall not be entitled to deduction thereof. 12. In view of the undisputed fact that the Employees share of contribution of ESIC was paid aft .....

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4. During the course of assessment proceedings and on perusing the Profit and Loss account, AO noticed that assessee has earned dividend income of ₹ 7,285/- and had also incurred interest expenses of ₹ 26,12,418/-. The assessee was asked to show cause as to why no disallowance be made u/s. 14A of the Act to which assessee inter alia submitted that the investments of the assessee was ₹ 16,11,210/- against which the total Reserves and Surpluses were in excess of ₹ 1.39 cror .....

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have gone through assessment order Provision of Section 14A, Rule 8D and submission of the AR of the appellant. The contentions and arguments raised by the AR of the appellant hold good only where the disallowance u/s 14A is in respect of period prior to A Y 2008-09 and not in respect of A Y 2008-09 and subsequent years. Wef 24/03/2007, Rule 8D has been inserted to compute the disallowance of financial and administrative expenses u/s 14A on estimated basis. Rule 8D lays down the formulae to comp .....

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herefore, I uphold the action of the AO to disallow ₹ 139,210 out of financial expenses u/s 14A r.w. Rule 8D. 15. Aggrieved by the order of CIT(A), Assessee is now in appeal before us. 16. Before us, Ld. AR reiterated the submissions made before CIT(A). He further submitted that no borrowed funds have been used by the assessee for making investments, the investments were made in earlier years, the interest free funds are in excess of investments and further the dividend income earned by th .....

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e from old investments made in earlier years, no fresh investment has been made during the year under consideration and the interest free funds are far in excess of investments. Before us apart from making oral submissions, no material has been placed on record by the assessee to demonstrate as to the availability of interest free funds in the year of investments. In the case of Dhanuka and Sons vs. CIT 239 ITR 319 (Cal), the Hon ble Culcutta High Court has held that the mere fact that the share .....

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which is exempt from tax whereas the assessee was unable to produce any material before the authorities below showing the source from which such shares were acquired. Mr. Khaitan strenuously contended before us that for the last few years before the relevant previous year, no new share has been acquired and thus, the loan that was taken and for which the interest is payable by the assessee was not for acquisition of those old shares and, therefore, the authorities below erred in law in giving be .....

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assessee to show by the production of documentary evidence that such loaned amount had already been paid back and for the relevant Assessment Year, no interest is payable by the assessee for acquiring those old shares. In the absence of any such materials placed by the assesses, in our opinion, the authorities below rightly held that proportionate amount should be disallowed having regard to the total income and the income from the exempt source. In the absence of any material disclosing the sou .....

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ITA No. 117 of 2015 decided on 25-02-2015 wherein the hon ble High Court has held as under: 9. In the present case, the AO has not firstly disclosed why the appellant/assessee's claim for attributing ₹ 2,97,440/- as a disallowance under Section 14A had to be rejected. Taikisha says that the jurisdiction to proceed further and determine amounts is derived after examination of the accounts and rejection if any of the assessee's claim or explanation. The second aspect is there appear .....

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come is to be disallowed. The window for disallowance is indicated in Section 14A, and is only to the extent of disallowing expenditure incurred by the assessee in relation to the tax exempt income". This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case. 19. Considering the fact that the Assessee has stated that investments have been made in earlier years and the disallowance u/s. 14A is in excess of the tax free income and .....

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statistical purposes. Ground No. 2 was not pressed and therefore the same is dismissed as not pressed. Ground No. 3 is with respect to disallowance of travelling expenses of ₹ 3,68,020/- 20. During the course of assessment proceedings, AO noticed that assessee has incurred travelling expenses of ₹ 8,21,392/-. From the details of expenses furnished by the assessee, he noticed that the major parts of the expenses incurred by the director and his family for a trip on cruise ship. In th .....

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. It is pertinent here to note that the AO has stated that the said expenditure was in respect of pleasure trip made by director and his family. On perusal of the details provided to me, it is transpired that the bills are in name of Mr.Anilkumar Jhajharia and Mrs.Meenaxiben Jhajharia , who, both were whole time Directors of the Company. The AR also drew my attention to Form no 3CD where in a payment in respect of remuneration was shown to be made. Therefore, it is proved that they were also emp .....

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ote that just because it was a foreign travel does not itself establish that the entire expense on foreign travel was personal in the nature. Therefore, AO has not proved that the said foreign trip was 'pleasure trip". I agree with the contentions of the AR that international travel in the modern era represents a combination of business meetings and social get-together. This has necessitated spouses to accompany husbands' who are senior executives on travel abroad. Often, some or mo .....

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view of my above observation, in interest of natural justice, I direct AO to restrict such disallowance to 70% of amount of disallowance made by him vide his order dated 29/11/2010 (70% of ₹ 525,743/-). As such addition of ₹ 368020/- is confirmed. 22. Aggrieved by the order of CIT(A), Assessee is now in appeal before us. 23. Before us, Ld. AR reiterated the submissions made before AO and CIT(A) and submitted that the addition upheld by CIT(A) be deleted. In the alternate he submitte .....

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