TMI Blog2016 (1) TMI 797X X X X Extracts X X X X X X X X Extracts X X X X ..... hether, any adverse effect has to be drawn in the cases where interest free deposits have been accepted. Thus, in wake of the said judgment of Hon’ble Bombay High Court we are of the opinion that the matter should be restored back to the file of the AO to determine the ALV as per the guidelines proposed - Decided in favour of assessee for statistical purposes. Disallowance of overseas commission u/s 40(a)(ia) - non deduction of tds - Held that:- AO has not given any specific finding qua the said provision of payment of overseas commission in the assessment order, nor the CIT(A) has given any finding as to how the amount is exigible to tax in the hands of the recipient. Therefore, in the interest of justice, we feel that this matter should be restored back to the file of the AO to examine the chargeability of tax in the hands of the recipient on the payment of commission and then decide, whether the TDS is to be deducted or not. - Decided in favour of assessee for statistical purposes. Disallowance made for treating current repair as a ‘capital expenditure’ - Held that:- we find that no specific finding with regard to the expenditure aggregating to ₹ 8,78,595/- has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asible. Under such circumstance, when the details of opening stock, closing stock, quantity, value, rates are available, which are subjected to verification and cross check then it is suffice to hold that CIT(A) was correct in holding that there is no reason for rejecting the books of accounts. On the issue of accounting on scrap, it has been found that assessee has been recording the same at the time of sale and not at the time of generation of scrap. The assessee was following a particular method of accounting of scrap, from last several years which cannot be rejected, unless such a method of accounting is not correct. Further, as pointed out by the Ld. Counsel, this method of accounting is followed and accepted by the department. Lastly, Ld. Counsel before us submitted that, right from AY 2001-02 to AY 2006-07, the assessments have been completed u/s 143(3), wherein the income has been assessed without rejection of books of accounts or estimation of gross profit on similar method of accounting and on similar facts. The Ld. AO has not pointed out any difference in this year. - Decided in favour of assessee. - ITA No. : 672/Mum/2011, ITA No. : 1982/Mum/2011 - - - Dated:- 30-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to work out addition on account of estimation of profit. 8. The learned CIT (A) has erred in law and on facts in approving the additions of ₹ 48,064/- and ₹ 1,41,776/- made by the Assessing Officer for belated payment of ESIC and PF respectively. The learned CIT (A) ought to have deleted the additions as there was no delay in payment of ESIC contributions were concerned; and the PF dues were paid within the grace period . 3. At the outset Ld. Counsel, Shri Vijay Mehta, submitted that ground no. 4 7 are not pressed. Accordingly, these grounds are treated as dismissed as not pressed. Ground no. 1 and 10 are general, therefore, no adjudication is required. 4. So far as issue relating to addition of ₹ 53,48,000/- on account of estimation of annual letting value while computing the income from house property as raised in ground no. 2, the relevant facts on the impugned issue are that, the assessee had disclosed income of ₹ 40,39,219/- under the head Income from house Property . The AO from the details furnished by the assessee, noted that assessee owns following buildings; (i) Dhanpur, 15, Sir P M Road, Fort, Mumbai; and (ii) Shangri-la, 27A, Car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... copies of agreement with M/s Johnson Johnson, Centurion Bank and Futura Polyester Ltd, for premises rented to them at Shangrila (Residential Bldg.). Before the Centurion Bank, the said property was rented to Organon (India) Limited at monthly rent of ₹ 25,000/- and ₹ 2.5 Crore Security Deposit, the copy of agreement is enclosed. With regard to considering the market value for Flat No. 4 5, we would like to inform you that we have received a deposit of ₹ 5.50 Crores from two tenants. However, these deposits were credited in overdraft Account and thus, reducing the burden of interest cost. If, these deposits had not been received by us, the interest cost would have gone more by approx. ₹ 70-75 lakhs, which would have been admissible expenditure . 5. Ld. AO, after discussing various decisions and facts of the case, enhanced the ALV at ₹ 76,40,000/- and thereby made the addition of ₹ 53,48,000/-. He has estimated the market value of the rent of these flats at ₹ 4,50,000/- per month which was on the basis of comparison with the higher rent received from another tenant i.e. Futura Polyester Ltd, which was paying rent of ₹ 5 lakhs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ableness of estimate of market value of rent of these two properties. The income from house property has been computed at ₹ 19,63,555/- in view of enhancement of ALV by ₹ 76,40,000/-, after allowing deduction @ 30% u/s 24 of the Income Tax Act. The addition to the income from house property declared by assessee would be ₹ 53,48,000/- . 6. The Ld. CIT(A) too confirmed the action of the AO in enhancing the ALV of the two flats by adopting the monthly rent @ ₹ 4,50,000/-. 7. Before us, the Ld. Counsel submitted that now the issue, whether annual rent value can be determined after applying the Municipal valuation rate or not has been decided by the Hon ble High Court in the case of CIT vs Tip Top Typography [2012] 368 ITR 330 (Bom). Here in this case also, the assessee s contention has been that the annual letting value shown by the assessee was as per the actual rent received, which was far more than municipal valuation rate, therefore actual rent received should be accepted. 8. On the other hand, Ld. DR strongly relied upon the order of the CIT(A) AO and submitted that, when there was a direct comparable case in the same building, then it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed back the matter to the AO with a direction to verify the claims and allow the corresponding expenses. However, with regard to the amount of provision for commission, no proper finding has been given either by the AO or by the Ld. CIT(A), therefore, matter should be restored back to the file of the AO. 12. On the other hand, Ld. DR relied upon the finding of the CIT(A). 13. After considering the relevant finding given in the impugned orders, we find that the AO has not given any specific finding qua the said provision of payment of overseas commission in the assessment order, nor the CIT(A) has given any finding as to how the amount is exigible to tax in the hands of the recipient. Therefore, in the interest of justice, we feel that this matter should be restored back to the file of the AO to examine the chargeability of tax in the hands of the recipient on the payment of commission and then decide, whether the TDS is to be deducted or not. The AO will provide proper opportunity of hearing to the assessee while deciding this issue. Accordingly, ground no. 3 is treated as allowed for statistical purposes. 14. In ground no. 5 6, the assessee has challenged the disallowan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he expenditure which has been confirmed by the CIT(A) is on account of construction of a boundary wall however the construction cost of boundary wall was only ₹ 1,63,048/- and that also cannot be held to be capital expenditure but only repairs, because old wall was to be replaced. 18. On the other hand, Ld. DR strongly relied upon the order of the CIT(A). 19. After considering the relevant submissions and on perusal of the impugned order, we find that no specific finding with regard to the expenditure aggregating to ₹ 8,78,595/- has been given by the CIT(A) when the cost of construction of boundary wall itself was only ₹ 1,63,048/-, which was the basis for the disallowance by the Ld. CIT(A). Hence, in the interest of justice, we feel that this matter should also be restored back to the file of the AO to decide the issue afresh after calling for the details and examine the nature of the expenditure aggregating ₹ 8,78,595/-. If such expenditure are purely for repairs without creating any capital asset of enduring nature, then such expenditure should be allowed as revenue expenditure. Accordingly, ground no. 5 6 are treated as allowed for statistical pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contravened the conditions laid down under sub section 3 of section 35 of the I.T. Act. 2(i) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in holding that provisions of section 145(3) is not attracted in the case of the assessee without appreciating that information in respect of excess / shortage in stock in physical verification of the goods, the scrap generated were not recorded in the books. 2(ii) On the facts and in the circumstances of the case and in law, the ld. CIT(A) failed to appreciate that the books of accounts of the assessee were incorrect, incomplete and not in consonance with the accounting standard as notified under sub section 2 of section 145 of the I.T. Act . 25. Brief facts qua the issue raised in ground no. 1 is that, the assessee had incurred an expenditure of ₹ 86,89,000/- which was claimed as deduction u/s 35AB(2AB). The Auditors had made a remark in the Audit Report that assessee has certified that the impugned claim has been incurred on the Scientific Research for which it has made an application for in-house approval in R D Unit to the Department of Scientific and Industrial Research (DSIR) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, 2007 to 31st March 2009. From the perusal of the section 35(2AB)(i), it is evident that the expenditure on Scientific Research on In-house R D facilities is allowable as deduction if it has been approved by the Prescribed Authority. Thus, if the entire expenditure incurred by the assessee on development of facility has been approved then the said expenditure to be allowed for the purpose of weighted deduction. The approval here in this case was granted during the previous year relevant to the assessment year, thus the assessee was entitled to claim weighted deduction in respect of the entire expenditure incurred under section 35AB of the Act. Nowhere it has been provided under the section that R D facility is to be approved from a particular date and then only it would be allowable from that date only. This proposition finds support from the decisions of Hon ble Gujarat High Court in the case of CIT vs Claris Lifesciences Ltd. and in case of CIT v M/s Wheels India Ltd (supra), wherein it has specifically held as under :- The legislative intent of the section was to encourage the development of the facility by providing deduction of weighted expenditure. Since the developm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent order and the submissions of the Appellant. Looking into the reasons forwarded by the Assessing Officer, the Appellant s offence, the governing principles of section 145, principles of accounting and the specific facts of the Appellant s case, I do not agree with the Assessing Officer that the deficiencies and inadequacies pointed out by him call for rejection of the books of account. To this end, in the first place, on the Assessing Officer s observation on the exclusive method of CENVAT and VAT followed by the Appellant. I find that there were valid and practical reasons for not being able to correlate every item of the stock with the corresponding CENVAT and VAT credit available. As I note, the Appellant s products are numerous and accordingly, item to item correlation was not really feasible. Under the circumstances, when the details of opening and closing stock, quantity, value rate were otherwise available and which were subjected to checks and audit by various authorities, the inability to correlate alone cannot affect the correctness and completeness of the accounts. Further, apart from pointing out procedural flaw, no specific fault on the details submitted has been br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its realization has judicial sanction and accordingly, it cannot be taken as an inadequacy, which can call for rejection of books of account. The comparison of Appellant s profit with SKF and FAG also cannot attract rejection of the books. In the first place, the profit shown by the Appellant is better than that shown by SKF. Further, the Appellant s profile, status and volume of business is not comparable with that of FAG and accordingly, the comparison is incompatible. Although the Assessing Officer has brought out his own issues on this comparison, the fact remains that when seen against the totality of accounts such comparison thus, does not render the correctness and completeness of the books faulty. Books of account cannot be rejected on the basis of difference in perspective. Besides, the GP rate shown by the Appellant being 32.20% from the present year are higher than the earlier years. In line with the foregoing, in essence, I find that the discrepancies noted by the Appellant are procedural and marginal and when seen against the facts stated above do not make the correctness and completeness of accounts questionable as i) they stand explained and ii) the requisite in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... affirmed. Regarding other issues also, we find that the Ld. CIT(A) has given a proper finding and reasoning. On the issue of accounting on scrap, it has been found that assessee has been recording the same at the time of sale and not at the time of generation of scrap. The assessee was following a particular method of accounting of scrap, from last several years which cannot be rejected, unless such a method of accounting is not correct. Further, as pointed out by the Ld. Counsel, this method of accounting is followed and accepted by the department. Lastly, Ld. Counsel before us submitted that, right from AY 2001-02 to AY 2006-07, the assessments have been completed u/s 143(3), wherein the income has been assessed without rejection of books of accounts or estimation of gross profit on similar method of accounting and on similar facts. The Ld. AO has not pointed out any difference in this year. Thus, on these facts, we do not find any reason to deviate from the finding recorded by the Ld. CIT(A). Accordingly, ground no. 2 raised by the revenue is dismissed. 34. In the result, appeal of the department stands dismissed. To sum-up: Assessee s appeal is partly allowed for statist ..... X X X X Extracts X X X X X X X X Extracts X X X X
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