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2015 (11) TMI 414 - PUNJAB & HARYANA HIGH COURT

2015 (11) TMI 414 - PUNJAB & HARYANA HIGH COURT - TMI - Trading addition - rejection of books of accounts - CIT(A) deleted the addition confirmed by ITAT - Held that:- the manner in which the manufacturing activity should be carried out must be left to the assessee who is the best judge in such matters; in fact the assessee pointed out that how impractical it would be to stop the production process merely to verify the moisture content of the logs at the point of time when they are fed into the .....

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e place of cotton stalks, perhaps the gross profit rate would have been lower. It is also true that the Assessing Officer had not pointed out any suppression of sales or inflation of expenses. For these reasons, we are of the view that the Assessing Officer was not justified in not accepting the results of the MDF Division. - Decided against revenue.

Addition on account of interest on interest free loans - Held that:- The facts and circumstances relating to the disallownace of the int .....

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n favour of assessee.

Disallowance of inauguration expenses - ITAT allowed the claim - Held that:- The findings recorded by the CIT(A) as well as the Tribunal are pure findings of fact where they have recorded that the said expenditure was incurred exclusively for the purpose of assessee's business. The said findings have not been shown to be illegal or perverse in any manner by the learned counsel for the appellant, warranting interference by this Court. - Decided against revenue. - .....

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nue under Section 260A of the Income Tax Act, 1961 (in short, "the Act") against the order dated 22.2.2008, Annexure A.III passed by the Income Tax Appellate Tribunal, Delhi Bench 'B' New Delhi (in short, "the Tribunal) in ITA No.857/DEL/2000 for the assessment year 1993-94, claiming following substantial questions of law:- "1. Whether on the facts and in the circumstances of the case, the Hon'ble ITAT is right in law in confirming the order of learned CIT(A) dele .....

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the said year, disregarding the settled law that each assessment year is a separate year? 3. Whether on the facts and in the circumstances of the case, the Hon'ble ITAT is right in law in upholding the order of the learned CIT(A) deleting the addition made by the Assessing Officer on account of interest on interest free loans amounting to ₹ 4,43,730/- given to sister concern or persons covered under section 40A(2) of the Income Tax Act in contradiction with the judgment of jurisdiction .....

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No.130 of 2009, the following question of law has been claimed:- "Whether on the facts and in the circumstances of the case, the Hon'ble ITAT is right in law in reversing the order of the learned CIT(A) sustaining the addition made by the Assessing Officer on account of interest on interest free loans given to sister concern or persons covered under section 40A(2) of the Income Tax Act in contradiction with the judgment of jurisdictional High Court in CIT, Ludhiana vs. Abhishek Industr .....

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ure A.I at total loss of ₹ 15,98,87,690/-. The Commissioner of Income Tax (Appeals) [CIT(A)] vide order dated 20.10.1999, Annexure AII accepted the assessee's appeal in part. Both the assessee and the department filed cross appeals before the Tribunal. The Tribunal vide combined order dated 22.2.2008, Annexure A.III allowed both the appeals in part. The issues on which the Tribunal dismissed the department's appeal are as under:- i) The Assessing Officer made addition of ₹ 74 .....

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8377; 4,43,730/-. On appeal, the CIT(A) allowed relief in respect of loan given to M/s Southern Synthetics Limited which worked out at ₹ 4,43,730/-. The department filed further appeal before the Tribunal which was dismissed. iii)The Assessing Officer disallowed ₹ 4,78,845/- in connection with inauguration of MDF plant of Tohana. Although the assessee had separately debited expenses on account of travelling by business associates to attend the inaugural function of the assessee compa .....

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rt in CIT vs. Hindustan Aluminum corporation Limited, (1989) 176 ITR 206. The Tribunal upheld the view taken by the CIT(A). The appeal filed by the assessee before the Tribunal was partly allowed whereby out of disallowance of ₹ 4,97,347/- sustained by CIT(A) on account of interest given as interest free loan to sister concerns, the further relief of ₹ 80,000/- was given to the assessee by holding that the interest of ₹ 80,000/- on interest free loan to M/s Novika Investments w .....

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-92 respectively. The assessee's MDF Division at Tohana declared gross profit of 46.88%. The Assessing Officer found that there was discrepancy in the value of stock of eucalyptus wood and the stock of cotton stalk. The value of the stock as per the books was less than the value of the stock shown to the bank. The Assessing Officer did not accept the explanation of the assessee that the difference was due to theoretical calculation. The Assessing Officer invoked the provisions of Section 145 .....

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s shown a consistent or even a better trend for the year in appeal - it is better by more than 2% compared to the earlier two years, there was no justification for tampering with the same by enhancing the gross profit rate of the MDF Division by 2%. The Assessing Officer seems to have overlooked that this is the first year of the Tohana Division and in the very first year, an impressive rate of gross profit has been shown by the assessee. We are doubtful about the correctness of the action of th .....

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ock register showing consumption of raw material was not produced. The total consumption of the raw material has been given in the financial statements which are audited and these figures have not been questioned at all. As regards the objection that higher figures of stock were given to the Bank,it is seen that the figures of cotton stalks given to the bank were actually less than the figure shown in the books. In respect of the other stock, the assessee's submission before the Assessing Of .....

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stem by which the moisture content can be measured not only when the logs arrive in stock but also when they are fed into the plant for being sown, we can only say that the manner in which the manufacturing activity should be carried out must be left to the assessee who is the best judge in such matters; in fact the assessee pointed out that how impractical it would be to stop the production process merely to verify the moisture content of the logs at the point of time when they are fed into the .....

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he place of cotton stalks, perhaps the gross profit rate would have been lower. It is also true that the Assessing Officer had not pointed out any suppression of sales or inflation of expenses. For these reasons, we are of the view that the Assessing Officer was not justified in not accepting the results of the MDF Division. We confirm the decision of the CIT (Appeals) and dismiss the ground." Learned counsel for the revenue has not been able to point out any error in the concurrent finding .....

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of interest on interest free loans The assessee had given interest free advances to sister concerns out of interest bearing borrowings. The Assessing officer disallowed ₹ 9,41,077/- which consisted of ₹ 4,43,730/- relating to interest free advances made to Southern Synthetics Limited and ₹ 4,97,347/- relating to the sister concerns. The CIT(A) restricted the disallowance to ₹ 4,97,367/- on interest free advance other than made to Southern Synthetic Limited and the amount .....

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of ₹ 9,41,077/- made by the Assessing Officer on the reason that the assessee had made interest on borrowed funds. It is stated by the appellant that the advances have been made by the company out of own funds from share capital, reserves and surplus and not out of borrowed funds. It is further stated that nowhere department has co-related that the borrowed funds are used for the purpose of advancing the amount to these parties. The appellant has relied upon the case of CIT vs. Indian Exp .....

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outhern synthetic Limited subsidiary company which alter on became BIFR case, has merged with M/s Kothari Plantations Industries Limited (KPIL) w.e.f 31.3.1993 and stood dissolved without winding up on and from 23.4.1994. Since there was no change of recovering principal amount,hence the charge of interest is unreaslistic and hypothetical. The appellant has relied upon the case of CIT vs. Motor Credit & Co. (Pvt) Limited, (19881) 127 ITR 572 (Mad.) and CIT vs. Birla Gwalior (P) Limited, (197 .....

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ital reserves and surplus. Since, my predecessor has confirmed that disallownace on interest free loans to these five parties assigning the reason that the share capital reserve and surplus has been invested in the fixed assets and the appellant's share capital reserves and surplus are not available of advancing to these parties, therefore, the disallownace from this will be restricted to ₹ 4,97,367/- on interest free advance other than made to southern Synthetic Limited and the amount .....

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Officer was ₹ 9,41,077/-. This consisted of ₹ 4,43,730/- relating to interest free advances made to Southern synthetics Limited and ₹ 4,97,347/- relating to the sister concerns. From page 18 of the assessment order, it is seen that the amount of ₹ 4,97,347/- consists of the following:- Interest free advances to Interest i) Nuchem Industries ₹ 2000/- ii) Ratan Chand Harjas Rai ₹ 64,000/- iii) Novika Investment ₹ 80,000/- iv) Nuchem Investment ₹ 3,3 .....

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has also been considered by us in the appeals filed by the department in the earlier two years. In the earlier year's appeals, we have deleted the interest referable to advances made to Novika Investment following the order of the Tribunal for an earlier year. However, the interest referable to other four sister concerns was confirmed by us. In the appeals of the department, we had confirmed the decision of the CIT(Appeals) deleting the disallowance of interest referable to the advances mad .....

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nterest referable to the advances made to Southern Synthetics Limited is sustained as in the earlier years. The result will be that the assessee's ground is partly allowed, whereas the ground of the department, which is dealt with here itself, is dismissed." The findings of fact recorded by CIT(A) and the Tribunal are based on appreciation of material and evidence on record in which no error could be pointed out by the learned counsel for the revenue so as to hold the same to be pervers .....

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51/- being expenses incurred without vouchers in connection with the inauguration. The total amount came to ₹ 4,78,845/-. The CIT(A) deleted the disallowance of the inauguration expenses of ₹ 4,78,845/-. The Tribunal concurred with the findings recorded by the CIT(A) and held that the expenditure had been incurred wholly and exclusively for the purpose of the business of the assessee. The findings recorded by the CIT(A) read thus:- "11.Ground No.9 is with regard to disallowance .....

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icials and agents, who have come from all over the country to participate in the inauguration function. Another item of disallowance ₹ 1,54,051/65 pertaining to the inauguration expenses of Pune office. It is stated by the appellant that the conference was organized at Bombay and Pune where dealers, distributors, architects, designers and builders have participated in the conference and inauguration of Pune branch. The expenditure includes travellign expenses, expenses incurred on hoarding .....

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in this respect is deleted." 13. The Tribunal while concurring with the findings recorded by the CIT(A) recorded as under:- "92. Ground No.9 is that the CIT(Appeals) erred in deleting the disallowance of the inauguration expenses of ₹ 4,78,845/-. The total amount claimed by the assessee as deduction under this head was ₹ 8,33,593/-. The Assessing Officer disallowed ₹ 1,90,729/- representing payment to hotel as entertainment expenses, ₹ 1,34,063/- being travelli .....

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