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2015 (5) TMI 724 - ITAT DELHI

2015 (5) TMI 724 - ITAT DELHI - TMI - Disallowance of Prior period expenditure - Held that:- 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 treat .....

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siness purposes. However, in view of the submissions of the ld. DR, we restore this issue to the file of the Assessing Officer 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 dis .....

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nd 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 terms of service conditions. - Decided against assesse.

Disallowance of interest not charged on capital expenditure booked as work in progress on behal .....

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, 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 - Decided in favour of assesse.

Disallowance of Plant expenses - Held that:- the expenditure claimed is on the same footing as claimed by the assessee in grou .....

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5/-. We, therefore, do not find any basis for confirming the additions made by lower revenue authorities. - Decided in favour of assesse.

Disallowing the expenditure for personal use under the head of Telephone, Vehicle Running & Maintenance - Held that:- It is not in dispute that assessee has paid fringe benefit tax on telephone and vehicle running expenses, therefore, no further disallowance on estimate basis is called for- Decided in favour of assesse.

Addition on accoun .....

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he 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 s .....

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as assessee’s contention is that the details were before the Assessing Officer - Decided in favour of assesse for statistical purposes. - ITA No.1457/Del./2011, ITA No.1875/Del./2012, ITA No.1423/Del./2010 - Dated:- 15-5-2015 - SHRI S.V. MEHROTRA AND SHRI C.M. GARG, JJ. For the Appellant : Shri Raj Kumar Gupta, Advocate, Shri Amit Gopal, CA For the Respondent : Shri B.R.R. Kumar, Senior DR ORDER PER S.V. MEHROTRA, AM : ITA No.1457/Del/2011 filed by the assessee and ITA No.1423/Del/2010 filed b .....

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ome at ₹ 19,53,953/-. The assessment was completed at a total income of ₹ 62,90,861/- as under :- Income as per return of income 19,53,953/- Add: i) On account of ROC fees (as discussed vide para 3 and 3.1) (1,50,500 + 47,500) 1,98,000/- ii) On account of accrued on NCs (as discussed vide para 4) 63,605/- iii) On account of custom duty (as discussed vide para 5) 84,729/- iv) On account of custom duty (as discussed vide para 5.1) 7,04,233/- v) On account of professional fees (as discu .....

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nces (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. First, we take up assessee s appeal being ITA No.1457/Del/2011. .....

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per other relevant section of Income Tax Act 1961. 2. Ld. Commissioner of Income Tax (Appeals) has erred both on facts and in law in Confirming addition of ₹ 84,729/- and ₹ 7,04,233/- by Assessing officer by disallowing the interest on late payment of custom duty vide Para 5 and 5.1 of assessment order dated 24/12/2008 inspire' of our reply that there is no default on our part for late payment of custom duty being custom duty had been paid late for non release of material by cus .....

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6.1 of assessment order dated 24/12/2008. Being no amount had been provided for in the accounts for the F.Y. 2004-2005, expenditure had been accounted for on submission of bill by the consultant. 4. Ld. Commissioner of Income Tax (Appeals) has erred both on facts and in law in Confirming addition of ₹ 13,142/- by Assessing officer by disallowing the Mediclaim policy paid for Director of the company under the head insurance expenses vide para 7 of assessment order dated 24/12/2008 stating t .....

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(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. Commi .....

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nd no.1. Accordingly, the same is dismissed as not pressed. 5. Brief facts, apropos ground no.2, are that the assessee had claimed an amount of 34,78,005/- under the head Custom Duty. On examination of details, the Assessing Officer noticed that assessee had, inter alia, claimed a payment of ₹ 84,729/- to the Custom Department in the month of February, 2006 which was on account of delayed payment of Custom Duty on the goods imported during the financial year 2003-04. The Assessing Officer .....

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unts - (a) assessee had made the payment in the financial year 2005-06 whereas Custom Department had raised demand note on the goods imported during the financial year 2003-04; and (b) as the delay was attributable to the assessee, it had paid penalty in terms of interest. Further, the Assessing Officer noticed that under the head Custom Duty paid, the assessee had claimed an amount of ₹ 7,04,233/- as Custom Duty paid in the month of November, 2005. He noted that this was also on account o .....

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eriod. 6. Ld. Counsel for the assessee submitted that since the demand for both the amounts was raised during the year, therefore, liability accrued during the year itself and this was not a prior period expenditure. He submitted that the very nature of payment being interest clearly suggests that it is compensatory in nature and not penal in nature. Ld. DR submitted that there is nothing on record to suggest that the demand was raised during the year. He, therefore, submitted that the matter be .....

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e 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 Warehousing Date 15.11.2003 Free Period 90 Days Duty 1266775 Interest @15% p.a. (A) 333,180.00 (upto 15.11.2005 - Total 640 days) (12 .....

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e primarily compensatory in nature being on account of delayed payment of Custom Duty. Therefore, both the amounts are to be allowed being incurred wholly and exclusively for business purposes. However, in view of the submissions of the ld. DR, we restore this issue to the file of the Assessing Officer to verify when the demand was raised and if it was raised during the previous year under consideration then it is to be allowed. We order accordingly. This ground is allowed for statistical purpos .....

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allness 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-c .....

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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 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. It is true that disallowance cannot be made on the ground of personal ex .....

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n the case of Sayaji Iron and Engg. were entirely different inasmuch as the directors of the assessee were entitled to use the vehicles for their personal use in accordance with the terms and conditions on which they were appointed and the perquisites given to the directors formed part of their remuneration under section 309 of the Act. Therefore, we confirm this action of the lower revenue authorities on this ground. This ground is rejected. 13. Brief facts, apropos ground no.5, are that the as .....

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e assessee company, the expenditure so incurred on upgradation of plants was required to be reimbursed to the assessee company. The assessee company had not charged any interest on such expenditure though assessee had incurred such amount out of the funds borrowed from bank and financial institutions. The assessee in its reply stated as under :- Assessee company has not charged interest on work in progress of ₹ 46,73,942/- as decision was made by the management to charge interest on yearly .....

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. 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 consid .....

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f the Intellectual property rights concerning the Products and any future added Products and is entitled to these rights. WHEREAS "FOSCL" intends to expand its business in association with SIPL . NOW, WHEREAS "SIPL" and "FOSCL" herein have agreed to carry business as per the terms as laid down in this AGREEMENT. NOW, THEREFORE, IT IS AGREED BY AND BETWEEN SIPL" AND "FOSCL" AS FOLLOWS: THIS AGREEMENT IS IN CONTINUATION TO THE MOUs DATED 23.04.2004 AND .....

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overhauling of plant & machinery & purchase of items required for plant operation and Working-Capital Expenses considered as 'Post-Operative Expenses' (meaning within the broad term as expenses incurred towards purchase of raw materials/feed-stock for processing all production expenses such as, Utility, Wages, Administration, Maintenance, Stores &. Spares involved by SIPL at the plant of FOSCL will be interest free as the profits derived from the business will be shared betw .....

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their other sources of income relating to M/s Ramakant Plant and Ramesh Pilani associates. Such investment from the First Party will be settled and paid within 180 days failing 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 a .....

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f 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 claimed expenses of ₹ 93,973/- which was incurred on behalf of FOSCL. The Assessing Officer disallowed this expenditure for .....

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o the following persons :- (i) Shri B.B. Ashtagi ₹ 3,46,035/- (ii) Shri B.M. Laxmi Narain Rao Rs.14,50,000/- (iii) Shri Babu Rao Kazi ₹ 1,00,000/- Rs.18,96,035/- The Assessing Officer noticed that these advances were interest free despite the fact that assessee was paying the interest on the borrowed funds. The Assessing Officer required the assessee to show cause as to why notional interest on these advances should not be charged. The assessee submitted as under :- Advance to Sh. B. .....

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was no explanation why the said advance was pending with the above three individuals and proof of any business transactions with them had not been submitted. 20. Ld. Counsel for the assessee submitted that assessee was having sufficiently owned funds to advance this amount. In this regard, he referred to page 36 of the paper book and submitted that assessee had reserves and surplus of ₹ 28,99,603/-. He further referred to page 37 of the paper book and submitted that assessee had advances .....

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377; 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 confirme .....

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a observed as under:- 8. The Commissioner of Income Tax(A) has disallowed above addition with an observation that the Assessing Officer has failed to note that the FBT was paid on the major part of the expenses has been paid by the assessee and for the remaining expenses, the Assessing Officer could not make any claim for disallowance. The Commissioner of Income Tax(A) further observed that in a case of a firm having a turnover of more than ₹ 166 crores and returning an income of ₹ 1 .....

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of the revenue being devoid of merits is also dismissed. It is not in dispute that assessee has paid fringe benefit tax on telephone and vehicle running expenses, therefore, no further disallowance on estimate basis is called for. Accordingly, this ground is allowed. 25. In the result, the appeal filed by the assessee being ITA No.1457/Del/2011 is partly allowed. 26. Now, we take up revenue s appeal being ITA No.1423/Del/2010. The Department has taken following effective two grounds :- "1. .....

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eleting the addition of ₹ 11,40,652/- made by the AO on account of prior period interest expenditure and thereby shifting 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 per .....

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ges 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/-), the Assessing Officer noted that assessee had not furnished any documentary evidences and working of valuation of closing stock and supporting evidences thereof. He, accordingl .....

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payment was made for the purpose of business of assessee. 29. Ld. DR submitted that this is the direct cost incurred by the assessee for import of Benzene, therefore, should have been allocated to the closing stock also. 30. Ld. Counsel for the assessee referred to page 40 of the paper book and pointed out that service charges of ₹ 31,16,607/- had been debited to profit and loss account. He submitted that this system has consistently been followed. He further pointed out that in assessment .....

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ncurred for import of Benzene to the closing stock. We are not convinced with the submission of ld. Counsel for the assessee that since, in earlier years, no such apportionment was made, therefore, the consistent method of valuation should be followed. The assessee s approach is contrary 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 t .....

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ubsequent 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/ .....

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has not furnished any documentary evidences and has not provided the details for which period it relates. In absence of any details, it is not clear for which financial year the said payment is relevant. Since the assessee failed to substantiate the claim made by it by filing documentary evidence, same is treated as prior period expense. In view of this, an amount of ₹ 11,40,652/- claimed under the head interest paid to PEC Ltd is hereby disallowed and added back to the income of the asse .....

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