TMI Blog2015 (5) TMI 724X X X X Extracts X X X X X X X X Extracts X X X X ..... to verify when the demand was raised and if it was raised during the previous year under consideration then it is to be allowed - Decided in favour of assesse for statistical purposes. Disallowance of legal fee payment - denied on the ground of being relatable to prior period expenses - Held that:- keeping in view the smallness of amount and there being no dispute about genuineness of the expenditure and further the fee being relatable for the month of March, 2005, we are of the opinion that the claim should not be denied particularly when the bill has been received in the current assessment year and the payment has also been made in the current assessment year - Decided in favour of assesse. Disallowance of medi-claim policy of the Director of the company - Held that:- admittedly the mediclaim policy was for the benefit of director only and no benefit was derived by the assessee company from the said insurance policy in the name of director. This claim in no way was for the benefit of business interest of assessee company.,The assessee has not brought on record any evidence to infer that it was in any way under obligation to meet the expenditure on medi-claim policy in term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontrary to fundamental principle of accounting which require the matching of expenses with the revenue. If the revenue is to be realized by sale of stock in subsequent year then all the direct expenses attributable to the said stock can also be realized only when the stock is sold. Therefore, the direct expenses are to be allocated to the closing stock irrespective of the fact whether the same are debited to profit and loss account or trading account. We, therefore, set aside the order of the CIT (A) and restore that of the Assessing Officer. However, we are in agreement with the ld. Counsel for the assessee that if the closing stock of the current year is to be increased then simultaneously opening stock of subsequent year has also to be increased - Decided in favour of assesse for statistical purposes. Overdue interest charges - disallowed being prior period expenses and penal in nature - Held that:- we restore this matter to the file of the Assessing Officer for verification of assessee’s claim with regard to the details given by M/s. PEC Limited which is contained at page 48 of the paper book because the Assessing Officer has observed that assessee had not substantiated its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On account of medi-claim of the director (as discussed vide para 7) 13,142/- ix) On account of interest of work-inprogress (as discussed vide para 8) 1,24,148/- x) On account of plant expenses (as discussed vide para 4) 93,973/- xi) On account of notional interest on advances (as discussed vide para 9) 2,84,405/- xii) On account of telephone vehicle (as discussed vide para 10) 50,000/- xiii) On account of service charges (as discussed vide para 11.3 7,32,148/- + 8,08,857/-) 11,40,652/- 43,36,908/- Total Income : 62,90,861/- Ld. CIT (A) partly allowed the assessee s appeal. Being aggrieved with the order of the CIT (A), both the assessee and revenue are in appeal for assessment year 2006-07. 3. Firs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- booked as work in progress on behalf of plant owner M/s Futuristic Offshore Services Chemicals Ltd. vide para 8 of assessment order dated 24/12/2008. 6. Ld. Commissioner of Income Tax (Appeals) has erred both on facts and in law in confirming addition of ₹ 93,973/- by Assessing officer by disallowing the plant expenses of ₹ 93,973/- vide para 8.1 of assessment order dated 24/12/2008. 7. Ld. Commissioner of Income Tax (Appeals) has erred both on facts and in law in confirming addition of ₹ 2,84,405/- being interest not charged on business advances of ₹ 18,96,035/- given in earlier years vide para 9 of the assessment order dated 24/12/2008. 8. Ld. Commissioner of Income Tax (Appeals) has erred both on facts and in law in confirming addition of ₹ 50,000/- by Assessing officer by disallowing the expenditure of ₹ 50,000/- on estimate bases for personal use under the head of Telephone, Vehicle Running Maintenance vide para 10 of the assessment order dated 24/12/2008 inspite of Fringe Benefit Tax paid on Telephone Vehicle Running Maintenance expenses. 4. At the time of hearing, ld. Counsel for the assessee did not press ground no.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nothing on record to suggest that the demand was raised during the year. He, therefore, submitted that the matter be restored to Assessing Officer to verify when the demand was raised. 7. We have considered the submissions of both the parties. The facts are not disputed. Ld. Counsel refers to page 20A wherein Cochin Customs receipt for miscellaneous charges is contained which is dated 30.01.2006 acknowledging the payment of ₹ 84,728/-. In this receipt, the bill of entry number is mentioned as 170028 dated 30.11.2005 from 16.11.2005 to 31.01.2006. This suggests that the demand note was received during the year under consideration and, therefore, this cannot be treated as prior period expenditure. Similarly, the details of interest for ₹ 7,04,233/- at page 20B of the paper book are reproduced as under :- SPACE VISION IMPEX (P) LTD. A.Y. 2006- 2007 DETAILS OF INTEREST FOR ₹ 7,04,233/- 1. Bill of Entry No. 170027 Date 30.11.2005 Warehousing Qty. 1240 KLR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in view the smallness of amount and there being no dispute about genuineness of the expenditure and further the fee being relatable for the month of March, 2005, we are of the opinion that the claim should not be denied particularly when the bill has been received in the current assessment year and the payment has also been made in the current assessment year. We order accordingly allowing this ground. 10. Brief facts, apropos ground no.4, are that assessee company had paid a sum of ₹ 13,142/- on medi-claim policy of the Director of the company. The Assessing Officer disallowed the same on the ground that the same are personal in nature. Ld. CIT (A) confirmed the Assessing Officer s action. 11. Ld. Counsel submitted that there cannot be any disallowance on the ground of personal expenditure of director in the hands of the assessee company because the amount has been incurred for the purpose of business. He relied on the decision of Hon'ble Gujarat High Court in the case of Sayaji Iron and Engg. Co. vs. CIT reported in 253 ITR 749. 12. Having heard both the parties, we do not find any reason to interfere with the order of lower revenue authorities because admitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer observed that assessee had neither charged interest during the year nor in the subsequent year on the amounts so incurred on behalf of FOSCL whereas the assessee had paid interest on the borrowed funds even for a single day which was stated to have been utilized upgrading of plants. He computed the disallowance at ₹ 1,24,148/- by applying the interest @ 15% per annum. Ld. CIT (A) confirmed the Assessing Officer s action. 14. Ld. Counsel referred to page 25 onwards wherein the agreement of business arrangement between assessee and FOSCL dated 08.09.2004 is contained and pointed out that it was clearly agreed that the assessee would advance interest free funds to FOSCL as the profits derived from the business will be shared between both the parties on equal basis. He submitted that this arrangement was made on account of commercial business expediency and, therefore, no disallowance could be made. 15. We have considered submissions of both the parties. In the agreement, the following recitals are made :- WHEREAS SIPL is carrying on the business as importer and exporter of petroleum products and has considerable technical knowledge rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling which interest @ 15% per annum will be charged extra. However, the financial expenses incurred to SIPL with regard to settlement of outstanding dues of FOSCL towards Financial Institutions, Banks, Excise, Sales Tax, MSEB MIDC will be paid by FOSCL at the Interest Rate of 12% per annum. A bare perusal of the above arrangement clearly shows that the whole arrangement has been made on account of commercial expediency because both the parties were benefited by the technical knowledge and know-how of each other. FOSCL was also the holder of intellectual property rights concerning the products and any other future added products and was entitled to these rights, therefore, it was in the interest of assessee to get benefit out of the same. We, therefore, considering the commercial expediency involved and terms of the agreement between the parties, did not find any reason to confirm the disallowance made by the lower revenue authorities on account of interest element on the amounts advanced to FOSCL being reflected as work-in-progress in the fixed assets. This ground is allowed. 16. Brief facts, apropos ground no.6, are that under the head Plant expenses, the assessee company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 24,58,305/-. He submitted that in any way of the matter, no notional interest could be charged. 21. We have considered the rival submissions and perused the record of the case. It is well settled law that no addition can be made on account of notional interest to be earned by assessee. This is against the very concept of real income theory. Be that as it may, the assessee had sufficiently owned funds to advance a sum of ₹ 18,96,035/-. We, therefore, do not find any basis for confirming the additions made by lower revenue authorities. Accordingly, this ground is allowed. 22. Brief facts, apropos ground no.8, are that from the tax audit report, the Assessing Officer noticed that auditors had observed that assessee might have booked some personal expenses under the head telephone expenses and vehicle running maintenance. He accordingly made a disallowance of ₹ 50,000/- on estimate basis which was confirmed by ld. CIT (A). 23. Ld. Counsel for the assessee submitted that fringe benefit tax has been paid on telephone and vehicle running expenses, therefore, further disallowance is not called for. He relied on the decision of ITAT in the case of Assistant CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifting the onus to the AO to find out the period to which expenditure relates. 27. At the outset, ld. Counsel for the assessee submitted that part of the ground no.1 relatable to addition of ₹ 7,32,148/- is misconceived because assessee did not assail the findings of Assessing Officer before ld. CIT (A) in regard to take that charges of ₹ 7,32,148/- being pertaining to previous year. Therefore, the only issue is to be considered apropos ground no.1 is in regard to addition of ₹ 8,08,857/- made on account of under valuation of closing stock. 28. Brief facts, apropos this issue, are that the assessee company had imported material, namely, Benzene from M/s. PEC Limited and claimed to have paid a sum of ₹ 31,16,607/- on account of service charges to M/s. PEC Limited. In its reply, the assessee, inter alia, pointed out that out of the LC charges of ₹ 13,55,446/- debited to the service charges, ₹ 7,32,148/- pertaining to previous year, therefore, this amount was disallowed by Assessing Officer being pertaining to prior period expenses as assessee s admission. As regards balance amount of ₹ 6,23,298/- (Rs.13,55,446/- minus ₹ 7,32,148/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s account or trading account. We, therefore, set aside the order of the CIT (A) and restore that of the Assessing Officer. However, we are in agreement with the ld. Counsel for the assessee that if the closing stock of the current year is to be increased then simultaneously opening stock of subsequent year has also to be increased. We direct accordingly. This ground is allowed in terms of aforementioned observations. 32. Brief facts, apropos ground no.2, are that the assessee company had made a payment of ₹ 11,40,652/- to M/s. PEC Limited on account of overdue interest charges. The assessee was required to explain as to why this amount should not be disallowed being prior period expenses and penal in nature. The assessee submitted as under :- The interest of ₹ 11,40,652/- paid to PEC Ltd. in respect of delay in payment to them. The payment have been delayed due to fall in market price of the product deal by the assessee company. Interest on delayed payment is not the penalty charged by PEC Ltd., therefore it is allowed as revenue expenditure. The Assessing Officer did not dispute the assessee s claim that it was not penal in nature, however, ob ..... X X X X Extracts X X X X X X X X Extracts X X X X
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