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M/s Rimjhim Ispat Limited, Kanpur and others Versus A.C.I.T. -VI, Kanpur and others

2015 (8) TMI 127 - ITAT LUCKNOW

Disallowance of commission - Held that:- Such ad hoc disallowance without any basis is not justified and hence, we hold that no disallowance is called for out of these expenses claimed by the assessee under the head commission expenses because no basis has been indicated by the Assessing Officer in the assessment order for making this disallowance and the same was made by making a general observation that complete supporting evidence was not brought on record without indicating even one particul .....

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n both the years. - Decided in favour of assessee.

Disallowance of telephone expenses - Held that:- As per the judgment of Sayaji Iron and Engg. Co. (2001 (7) TMI 70 - GUJARAT High Court), even if there is personal use of telephone and vehicles etc. by the Directors / employees of the company, the same can be included in the perquisites value of the concerned Director/ employee but the disallowance cannot be made in the hands of the assessee company. Thus we hold that the disallowance .....

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ar 2003-2004 and assessment year 2001-2002, the increase in expenditure in assessment year 2003-04 over and above the expenditure of assessment year 2001-2002 is excess about 30% but since the expenses of assessment year 2001-02 itself are excessive and we feel that the disallowance of 30% out of expenses in assessment year 2001-2002 is not excessive, the disallowance of 30% in assessment year 2003-2004 is also reasonable because in assessment year 2003-2004 also, it is noted by the Assessing Of .....

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of Learned A.R. of the assessee because as per this judgment of Hon'ble Gujarat High Court in the case of Sayaji Iron and Engg. Co. (supra), even if there is personal use of vehicles etc. by the Directors / employees of the company, the same can be included in the perquisites value of the concerned Director/ employee but the disallowance cannot be made in the hands of the assessee company. Therefore, by respectfully following this judgment of Hon'ble Gujarat High Court, both these grounds of th .....

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der this head were incurred in cash as noted by the Assessing Officer. When we compare the turnover of assessment year 2003-04 with that of assessment year 2001-02, we find that the increase in turnover is about 200% and the increase in consumption of consumables stock in assessment year 2003-04 as compared to assessment year 2001-02 is about 75%. Hence, it is seen that the increase in expenses in the assessment year 2003-04 is not abnormal even if the same is compared with the expenses for asse .....

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0% when the turnover increase in assessment year 2003-04 as compared to assessment year 20001-02 is about 200%. - Decided partly in favour of assessee.

Disallowance of unabsorbed depreciation - Held that:- When we go through the order of learned CIT(A) for assessment year 2001-02, we find that the issue regarding unabsorbed depreciation is not arising out of order of CIT(A) in that year because the ground raised by the assessee before CIT(A) was regarding disallowance out of commissio .....

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y - Held that:- It is noted by learned CIT(A) for assessment year 2003-04 that the Assessing Officer has disallowed the claim of depreciation on the basis that the assessee could not produce the bill being the cost of new addition to plant & machinery. The said bill was not produced before learned CIT(A) also and the same is also not produced before us and therefore, we do not find any reason to interfere in the order of learned CIT(A) on this issue. - Decided against assessee. - ITA No.443/LKW/ .....

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ent years. All these appeals and Cross Objections were heard together and are being disposed of by this common order for the sake of convenience. 2. At the very outset, it was submitted by Learned A.R. of the assessee that the tax effect in the Revenue s appeal i.e. I.T.A. No.515/Lkw/2013 for assessment year 2001-02 is less than ₹ 4 lacs and therefore, this appeal of the Revenue is not maintainable because of low tax effect as per instructions of the Board. He also submitted that both the .....

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assessee are dismissed. 5. It was admittedly agreed by both the sides that the issues raised by the assessee in its both the appeals for assessment year 2001-02 and 2003-04 are identical and the facts are also identical. Regarding the appeal of the Revenue for assessment year 2003-04 also, it was agreed by both the sides that these issues raised by the Revenue are inter connected with the appeal of the assessee for the same year. 6. Ground No. 1 of the appeal of the assessee for assessment year .....

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1,00,000/- made on account of commission. Ground No. 1 of Revenue for assessment year 2003-04 The Ld. C1T(A) has erred in law and on facts in restricting the disallowance made by the AO of ₹ 2,00,000/- out of commission expenses to ₹ 1,00,000/- without appreciating the facts that most of the disallowances were made on account of cash payment for which no records were maintained by the assessee company. 7. It was submitted by Learned A.R. of the assessee that disallowance made by the .....

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nt order in both the years. 9. We have considered the rival submissions. We find that it is noted by the Assessing Officer in the assessment order for assessment year 2001-02 that the assessee has claimed an expenditure of ₹ 14.40 lacs under the head commission as against such expenses of ₹ 6.08 lac in the immediately preceding year. The Assessing Officer asked the assessee to justify its claim. The Assessing Officer s objection is that the assessee could not produce complete support .....

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the head commission expenses because no basis has been indicated by the Assessing Officer in the assessment order for making this disallowance and the same was made by making a general observation that complete supporting evidence was not brought on record without indicating even one particular evidence, which was asked for by the Assessing Officer and could not be produced by the assessee. Similarly, in assessment year 2003-04 also, the Assessing Officer has made similar observations that the a .....

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re as under: Ground No. 2 for assessment year 2001-02 is as under: That the learned CIT(A) has erred in confirming the disallowance to the extent of ₹ 47,345.85 made on account of telephone expenses. Ground No. 2 for assessment year 2003-04 is as under: That the learned CIT(A) has erred in confirming the disallowance to the extent of ₹ 67,338.53 made on account of telephone expenses. Connected ground in Revenue s appeal being ground No. 2 is as under: The Ld. CIT(A) has erred in law .....

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he judgment of Hon'ble Gujarat High Court rendered in the case of Sayaji Iron and Engg. Co. vs. CIT [2002] 253 ITR 749 (Guj). 12. We have considered the rival submissions. We find that as per the judgment of Hon'ble Gujarat High Court rendered in the case of Sayaji Iron and Engg. Co. (supra), even if there is personal use of telephone and vehicles etc. by the Directors / employees of the company, the same can be included in the perquisites value of the concerned Director/ employee but th .....

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he assessee in both the years is allowed and ground No. 2 of the Revenue is rejected. 13. Ground No. 3 in assessee s appeal for assessment year 2001-2002 is as under: That the learned CIT(A) has erred in confirming the disallowance to the extent of ₹ 4,97,064.75 made on account of freight & cartage (outward). 14. Ground No. 3 in assessee s appeal for assessment year 2003-2004 is as under: That the learned CIT(A) has erred in confirming the disallowance to the extent of ₹ 7,73,610 .....

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maintained by the assessee company. 16. Learned D.R. of the Revenue supported the assessment order in both the years whereas it is submitted by Learned A.R. of the assessee that no specific defect has been pointed out by the Assessing Officer in the assessment order or by learned CIT(A) in his order and therefore, the entire disallowance should be deleted. 17. We have considered the rival submissions. We find that in the assessment order for assessment year 2001-02 in para3, it is noted by the .....

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r 2001- 2002. When the assessee carried the matter in appeal before CIT(A), he held that instead of 30%, disallowance of 15% will meet the ends of justice. 17.1 Similarly in assessment year 2003-04, it is noted by the Assessing Officer that the assessee s claim of expenditure is of ₹ 108.19 lacs under the head freight & cartage outward as against ₹ 33.14 lacs in assessment year 2001-02 and ₹ 101.97 lacs in assessment year 2002-03. Since the assessee could not explain the ab .....

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ssee in assessment year 2000-2001 was ₹ 3828.50 lacs, which has increased to ₹ 5701.36 lacs in assessment year 2001-2002 and ₹ 9292.52 lacs in assessment year 2002-03 and ₹ 16978.54 lacs in assessment year 2003-04. Hence, it is seen that the increase in turnover in assessment year 2001-02 as compared to assessment year 2000-2001 was around 50% but the expenditure under the head freight and cartage outward has increased to ₹ 33.14 lac in assessment year 2001-2002 as .....

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enses are incurred in cash and the assessee could not explain this abnormal increase in the expenses, the disallowance made by the Assessing Officer to the extent of 30% of the expenses is not excessive in the facts of the present case in assessment year 2001-2002. Similarly, in assessment year 2003-04 also, the increase in expenses, as compared to assessment year 2001-2002 is 326% whereas the turnover of assessment year 2003-04 is ₹ 16978.55 lac as against turnover of ₹ 5701.37 lac .....

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2 is not excessive, the disallowance of 30% in assessment year 2003-2004 is also reasonable because in assessment year 2003-2004 also, it is noted by the Assessing Officer that freight & cartage outward payment of ₹ 51.57 lac have been made in cash, which was not verifiable as per the Assessing Officer in Para 7 of the assessment order for that year. Hence, in both the years, we find that the disallowance made by the Assessing Officer of 30% of expenses under the head freight and carta .....

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on account of vehicle running & maintenance 19. Ground No. 4 in assessee s appeal for assessment year 2003-2004 is as under: That the learned CIT(A) has erred in confirming the disallowance to the extent of ₹ 1,05,130.00 made on account of vehicle running & maintenance 20. Ground No. 4 in Revenue s appeal for assessment year 2003-2004 is as under: The Ld. CIT(A) has erred in law and on facts in restricting the disallowance made by the AO of ₹ 2,62,825/- out of vehicle runnin .....

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). 22. We have considered the rival submissions. We find force in the submissions of Learned A.R. of the assessee because as per this judgment of Hon'ble Gujarat High Court in the case of Sayaji Iron and Engg. Co. (supra), even if there is personal use of vehicles etc. by the Directors / employees of the company, the same can be included in the perquisites value of the concerned Director/ employee but the disallowance cannot be made in the hands of the assessee company. Therefore, by respect .....

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onfirming the disallowance to the extent of ₹ 1,14,31,332.00 made on account of consumable stores. 25. Ground No. 4 in Revenue s appeal for assessment year 2003-2004 is as under: The Ld. CIT(A) has erred in law and on facts in restricting the disallowance made by the AO of ₹ 2,28,62,664/- out of consumable stores expenses to 5% of the total expenses without giving any reasons for restricting the disallowances and not appreciating the facts brought on record by the A.O. during the cou .....

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e assessment order for assessment year 2001-02 before making disallowance of ₹ 1,31,60,083/- in that year: From the profit & loss account it was found that assessee has claimed an expenditure amounting to ₹ 13,16,00,830/- under the head consumables stores" as against ₹ 5,79,67,751/- claimed in the immediate preceding period. Assessee was required to furnish the details in respect of the same as also its nature. Vide written submission dated 20.01.2003, it was explained .....

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r this head were also found to have incurred in cash. These facts clearly suggest that the expenses claimed under this head were not open to verification completely and the claim could not substantiated with supporting vouchers completely. Accordingly, keeping in view the totality of the facts and circumstances of the case including the fact that assessee 10% of the expenses claimed under this head will be disallowed which will take care of the portion of the expenditure remaining unsubstantiate .....

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7; 14,85,54,841/- in the A.Y. 2001 02 & 2002-03 respectively. The assessee was required to furnish the details in respect of the same as also its nature. Vide written submission dated ............... the assessee submitted that its production has increased to 50710.266 MT from 26587.050 MT and 29144.420 MT declared in A.Y. 2001 02 & 2002-03 respectively. The expenditure on consumables in the A.Y. 2001-02 & 2002-03 shown was ₹ 13.16,00,830/- & ₹ 14,85,54,841/- respecti .....

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ng years has gone down reasonably. The assessee company has further stated that almost all the expenses are vouched and almost all the payments have been made by cheques. The above contentions/submissions of the assessee have been examined with reference to books of account produced during the course of hearing. During the course of scrutiny of this claim, the assessee failed to produce supporting evidence i.e. bills and vouchers in respect of various purchases made under this head. The assessee .....

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works out to ₹ 2,28,62,664/- is added to the income of the assessee. 30. When the assessee carried the matter in appeal before the CIT(A) in assessment year 2001-02, he confirmed the entire disallowance of ₹ 1,31,60,083/- by making following observations in Para 6.2 and 6.2.1 of his order, which are reproduced below for the sake of ready reference:- 6.2 Decision I have considered the facts and circumstances of the case. The fact remains that the bills & vouchers have neither bee .....

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year i.e. 2002-03, the total turnover has increased to ₹ 92.93 crores as against Current Year's turnover (including trading) of ₹ 57.00 crores; whereas the consumables have increased to only ₹ 14.86 Crores (in A.Y. 2002-03) from ₹ 13.16 crores in the current year. This also shows that everything is not hunky-dory with the amount of expenditure shown to have been incurred on consumables in the current year. 6.2.1 To claim an expenditure as a deduction under the l.T.Ac .....

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duce the final product(s). In this case, during the current year, there has been a minor increase in production of iron & steel products from about 23,500 MT to 26,587 MT, whereas the consumables have increased by 100% which is not only inexplicable but against all the' principle of Chemical Science. The assessee has not helped the matter by keeping mum on such disproportionate increase in consumption of consumables. The plea that out of total purchases of consumables at ₹ 1316 lac .....

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e because there is no disproportionate jump in the consumption of consumables in assessment year 2003-04. Hence, we make out a chart of turnover in assessment year 2000-2001 to assessment year 2003-04 as well as consumption of stores in these years, which is as under: Assessment year Turnover Consumption of consumable stock - 2000-01 3828.50 lac 579.68 lac 2001-02 5701.37 lac 1316.01 lac 2002-03 9292.53 lac 1485.55 lac 2003-04 16978.55 lac 2286.27 lac Hence, when we compare the turnover of asses .....

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rtion of which has been reproduced above. When we compare the turnover of assessment year 2003-04 with that of assessment year 2001-02, we find that the increase in turnover is about 200% and the increase in consumption of consumables stock in assessment year 2003-04 as compared to assessment year 2001-02 is about 75%. Even if we reduce the expenses of assessment year 2001-02 by 30% being disallowance made by the Assessing Officer in that year, the consumption of that year goes down to 921.21 la .....

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lowance in that year. Therefore, in our considered opinion, the disallowance in assessment year 2001-02 made by the Assessing Officer and confirmed by learned CIT(A) to the extent of 30% in that year is proper and reasonable but no disallowance in assessment year 2003-04 is called for in the facts of the present case in view of the fact that the increase in expenses under this head in assessment year 2003-04 as compared to the reduced expenses of assessment year 2001-02 is about 150% when the tu .....

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owance of ₹ 1,10,332/- made on account of previous period items. 33. Learned A.R. of the assessee submitted that this ground is not pressed. Accordingly, this ground of the assessee is rejected as not pressed. 34. Ground No. 7 in assessee s appeal for assessment year 2001-2002 is as under: The learned Assessing Officer has erred in not deciding the allowance of unabsorbed depreciation amounting to ₹ 31,86,056/-. 35. It was submitted by Learned A.R. of the assessee that since there is .....

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ing out of order of CIT(A) in that year because the ground raised by the assessee before CIT(A) was regarding disallowance out of commission, out of telephone expenses, out of freight cartage outward, out of vehicle running expenses, out of consumable stores and out of previous years expenses and this issue has been raised by the assessee before us by way of normal grounds and not by way of additional ground and therefore, this ground of the assessee does not call for any adjudication because th .....

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