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2015 (4) TMI 538 - ITAT HYDERABAD

2015 (4) TMI 538 - ITAT HYDERABAD - TMI - Disallowance of finance charges by invoking the provisions of section 40a(ia) - no outstanding balance as on the last day of the FY - Held that:- if the relevant expenditure is found to have been paid within the relevant previous year, no disallowance under section 40a(ia) can be made on the ground that tax at source has not been deducted by the assessee from the payment of the said expenditure. In the present case, the expenditure in question on account .....

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branch of the assessee company - CIT(A) estimating the income of the assessee from the business of trading in sale of products by applying the net profit rate of 0.7% of sales - assesee contended that the relevant invoices and other details could not be furnished by the assessee during the course of assessment proceedings as proper and sufficient time was not allowed by the A.O. to do so - Held that:- all these details and documentary evidence in the form of invoices are duly maintained by the .....

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l purposes.

Disallowance made on account of expenditure claimed by assessee towards salary, wages and bonus, we find that the said disallowance made by the A.O. on adhoc basis is not sustainable. The nature of this expenditure claimed by the assessee is such that the same is not likely to vary with the turnover and merely because there was drastic reduction in the turnover of the assessee in the year under consideration, it cannot follow that there has to be a proportionate reduction .....

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stock to the A.O. - Held that:- submissions made by the assessee clearly shows that the decrease in stock was duly shown by the assessee in the expenditure side of the P & L account. It appears that this method of presentation adopted by the assessee was not appreciated by the A.O. in proper perspective. When the difference in opening and closing stock was duly reflected in the P & L account of the assessee as increase or decrease in stock, the value of opening and closing stock was duly taken i .....

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Decided against revenue. - ITA No. 404/Hyd/2014, ITA No. 548/Hyd/2014 - Dated:- 13-3-2015 - P. M. Jagtap, AM And Asha Vijayaraghavan, JM,JJ. For the Appellant : Mr P Muralimohan For the Respondent : Mr Rajat Mitra ORDER Per: P M Jagtap: These two appeals, one filed by the assessee being ITA.No.404/Hyd/2014 and the other filed by the revenue being ITA.No.508/Hyd/2014, are cross-appeals which are directed against the Order of Ld. CIT(A)-III, Hyderabad dated 15.01.2014. 2. The assessee in the p .....

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as well as Chennai branch. Although, the assessee produced the relevant details pertaining to Hyderabad branch, it could not produce either the VAT returns or the purchase invoices pertaining to Chennai branch. On verification of the relevant ledger extract pertaining to Chennai branch, it was also observed by the A.O. that the same did not contain the details of purchases made. He, therefore, held that the claim of the assessee for purchases of Chennai branch was not fully verifiable and disall .....

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r any explanation to the satisfaction of the A.O. for such higher claim on account of salaries, wages and bonus, adhoc disallowance of ₹ 4,80,000 was made by the A.O. out of the expenditure claimed by the assessee on account of salaries, wages and bonus. 3. During the course of assessment proceedings, it was also noticed by the A.O. that assessee had closing stock of ₹ 88,5,541 as on 31.03.2008 which was not brought forward and shown in the P & L account of the year under conside .....

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g stock made outside the books of accounts was worked out by the A.O. at ₹ 88,73,252 and the same was added by him to the total income of the assessee. 4. During the year under consideration, the assessee company had paid finance charges of ₹ 3,51,000 and ₹ 7,32,239 to M/s. Sujana Metal products Ltd., amounting to ₹ 3,51,000 and ₹ 7,32,239 respectively. Since no tax at source was deducted by the assessee from the said payments, financial charges amounting to ₹ .....

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the assessee and the material available on record, the Ld. CIT(A) restored the issue relating to addition made by the A.O. on account of non-disclosure of opening stock to the file of the A.O. with a direction to verify the claim of the assessee that the opening stock was very much grouped with the purchases. 6. As regards the disallowances made by the A.O. on account of unverifiable purchases of Chennai branch and expenditure claimed on account of salary, wages and bonus, the Ld. CIT(A) held th .....

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mputed by the Assessing Officer. The Ld. CIT(A) also confirmed the disallowance of ₹ 10,83,239 made by the A.O. on account of finance charges by invoking the provisions of section 40a(ia). 7. Aggrieved by the order of the Ld. CIT(A), assessee and revenue both are in appeal before the Tribunal on the following grounds : ITA.No.404/Hyd/2014 : A.Y. 2009-2010 (Assessee's Appeal) : "1. The Ld. CIT(A)-III, Hyderabad erred both in law and on facts in upholding order of the A.O. partly. 2 .....

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any. 5. The Ld. CIT(A), Hyderabad erred in directing the A.O. to reject the books of account and estimating the income of the appellant company. 6. Without prejudice to above grounds, the Ld. CIT(A) erred in directly to estimate the income of the appellant company at 0.7% which is very high in the line of business of appellant company. 7. The Ld. CIT(A), Hyderabad ought to have appreciated the fact that the appellant's average net profit in the preceding three assessment year is very less an .....

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#8377; 4,80,000 which had been disallowed by the A.O. on the basis of previous year turnover are genuine and no disallowance can be made in this regard. 10. The appellant may, add or alter or amend or modify or substitute or delete and/or rescind all or any of the grounds of appeal at any time before or at the time of hearing of the appeal." ITA.No.548/Hyd/2014 - A.Y. 2009-2010 (Revenue Appeal) : "1. The CIT(A) erred in law in setting aside the matter though he has no such power and al .....

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n law in granting relief to the assessee with reference to bogus purchases and bogus salary expenses. 5. Any other that may be taken at the time of hearing." 8. We have heard the arguments of both the sides and also perused the relevant material on record. Ground Nos.1 and 10 raised in the appeal of the assessee and ground No.5 raised in the appeal of the revenue are general in nature requiring no specific adjudication. 9. The common issue raised in ground Nos. 2 and 3 of the assessee's .....

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following the decision of Hon'ble A.P. High Court in the case of CIT vs. Janapriya Engineers Syndicate (ITA.No.352 of 2014 dated 24.06.2014) as well as the decision of Special Bench of the Tribunal at Visakhapatnam in the case of Merylin Shipping and Transport vs. Addl. CIT (ITA.No.477/Vizag/2008 dated 29.03.2012), that if the relevant expenditure is found to have been paid within the relevant previous year, no disallowance under section 40a(ia) can be made on the ground that tax at source .....

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paid. We, therefore, delete the disallowance made by the A.O. and confirmed by the Ld. CIT(A) on this issue and allow ground No.2 and 3 of assessee's appeal. 11. The common issue involved in ground Nos. 4 to 9 of assessee's appeal and ground Nos. 3 and 4 of the Revenue's appeal relates to the disallowance made by the A.O. on account of unverifiable purchases of Chennai branch of the assessee company and expenditure claimed on account of salary, wages and bonus which has been substit .....

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e. He held that the purchase of Chennai branch claimed by the assessee thus were not fully verifiable and disallowance to the extent of 8% of such purchase was made by him. He also made adhoc disallowance of ₹ 4,80,000 out of the total expenditure of ₹ 27,21,566 claimed by the assessee on account of salaries, wages and bonus on the ground that the expenses so claimed were not commensurate with the turnover of the year under consideration which had drastically come down as compared to .....

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h, we agree with the contention of the Ld. Counsel for the assessee that the action of the Ld. CIT(A) rejecting the books of account and estimating the income of the assessee by applying net profit rate of 0.7%, which resulted into the enhancement, is not justified in the facts and circumstances of the case especially when no notice of enhancement was given by the Ld. CIT(A) to the assessee, we find it difficult to accept his contention that the addition made by the A.O. by way of disallowance o .....

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tion that if any expenditure such as purchase is claimed by the assessee, the onus is on the assessee to support and substantiate its claim for such expenditure by producing the relevant documentary evidence as well as by furnishing relevant details whenever called for by the Assessing Officer. In the present case, this onus was not discharged by the assessee during the course of assessment proceedings and this position has not been disputed even by the Ld. Counsel for the assessee. He however h .....

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to restore this matter to the file of the A.O. for giving one more opportunity to the assessee to produce the relevant invoices and other details in order to support its claim of purchases made by Chennai branch and even the learned D.R. has not raised any objection in this regard. We, therefore, set aside the impugned order of the Ld. CIT(A) on this issue and restore the matter to the file of the A.O. with a direction to decide the issue relating to the assessee's claim of purchases made b .....

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the turnover of the assessee in the year under consideration, it cannot follow that there has to be a proportionate reduction in the expenditure claimed on account of salary, wages and bonus. This expenditure is substantially in the nature of fixed expenditure and the disallowance made by the A.O. on adhoc basis without pointing out any other specific instance of unverifiable element involved in the expenditure claimed by the assessee, in our opinion, is not well founded. We, therefore, direct .....

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ock to the A.O. with a direction to verify the claim of the assessee that the value of opening stock was duly grouped with purchases. 16. After considering the rival contentions and perusing the relevant material on record, it is observed that the addition made by the A.O. on account of non-disclosure of opening stock was assailed by the assessee before the Ld. CIT(A) by making the following submissions in writing : 1. "As seen from the P & L account drawn in the annual report 2008-09 t .....

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reliminary expenses 1,185 1,185 Increase or decrease in stock (Sch.(M)) 88,55,541 18,64,009 Total 332,73,40,523 646,20,27,588 Net Profit Before Tax 67,10,243 84,76,996 The following are the schedules append to the P & L account as drawn above (Schedule-N Profit & Loss a/c. for F.Y. 2007-08). Particulars Amount Closing balance as on 31.03.07/opening balance as on 1.4.07. 1,07,19,550 Closing balance as on 31.3.08 88,55,541 Decrease in stock written off to profit and loss account F.Y. 2007- .....

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no opening stock as on first day of financial year 2008-09 is taken to the debit of trading account and no closing stock as on last day of financial year 2008-09 was credited to trading account. However, some stock adjustment was made to P & L account as per item No.6; This represents the decrease in stock, as shown in schedule (N). The decrease in stock has been reduced from the profit. This is done by way of accounting entry by inclusion into expenditure". In fact, this represents ad .....

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