TMI Blog2012 (1) TMI 222X X X X Extracts X X X X X X X X Extracts X X X X ..... g to the turnover of the assessee and other details kept by assessee, we hold that ld. CIT (A) was justified in deleting the addition. Depreciation @80% on windmill allowed Addition on account of interest expenses - Held that:- The ground taken by the department is wrong as ld. CIT (A) has remitted the matter back to the file of AO to work out disallowance in view of provisions of section 14A of the Act. The assessee has also challenged the finding of ld. CIT (A) by ground No. 11 and 12 in which it has been held that provisions of section14A are not applicable on the facts of the present case. Vehicle running & maintenance expense allowed Disallowance of packaging material expenses Disallowance of legal and professional expenses - Held that:- On perusal of ledger account of legal and professional expenses, it is noticed that the expenditure is incurred on payment of monthly retainership charges to various consultants/professional charges paid for obtaining consultancy/court charges for appearing and arguing the matters at various levels. All the confirmations have been filed. There is no dispute about rendering of services. Therefore, we hold that there is no quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is a difference of nearly 2% which is not explainable by the assessee. (ii) No records are maintained for different quality of mustard seeds purchased, thereby failing to prove that the variation in the yield of mustard oil oil cake is due to the inferior or the superior quality of mustard seeds purchased. (iii) No daily quantitative consumption records in respect of consumable stores in the form of coal wood etc. are maintained in the absence of which the expenses claimed by the assessee are not subject to verification. (iv) Assessee furnished the quantitative/qualitative details of opening closing stock of finished goods, raw material WIP but the valuation is unverifiable as there are number of instances of undervaluation of finished goods. In the absence of details of market price, the valuation of closing stock is not fully acceptable. (v) Assessee failed to substantiate whether the purchases from sister concerns is at prevailing market rate or not, in the absence of which genuineness of purchases from them is unverifiable. (vi) No evidence could be brought on record by the assessee regarding the increase in packing expenses by 40.51% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 45(3) are incorrect. The same is explained as under:- (i) The mustard seeds which are crushed to obtain the mustard oil oil cake is an agricultural produce available in different qualities due to different climatic conditions, irrigational facilities, fertilizers, agricultural techniques etc. Therefore, by no stretch of imagination, the same can be expected to yield a uniform percentage of oil. Therefore, even if purchases are centralized, the yield percentage can not be uniform. It may be noted that yield percentage of the assessee during A.Y. 03-04 was 31.86%, in A.Y. 04-05 was 31.21% in A.Y. 05-06 was 34.28% (PB 380) whereas during the year it is 33.14% (PB 13) which itself shows that yield rate can not be constant every year or even month to month. Further, from the mustard oil cake, assessee extracted solvent oil of 7.06% (PB 16). In earlier years the yield percentage has been accepted. In these circumstances, comparison of yield percentage of M/s Vijay Industries with that of the assessee has no significance. (ii) The assessee company maintains daily stock and production register wherein all the mustard seeds purchased and consumed in the milling are en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO regarding purchases from sister concerns at prevailing market rate or not is devoid of any merit. He has not pointed out any instance where payment made towards purchases from sister concern is excessive or unreasonable. (vi) The observation of the AO regarding packing expenses has no relevance with the application of section 145(3), since the AO himself has made separate disallowance in respect of packing expenses. 9. It was submitted that in assessee s own case in A.Y. 03-04, AO made addition of ₹ 50 lacs which was restricted by CIT(A) to ₹ 20 lacs. But the ITAT in ITA No. 728/JP/07 dt. 31.12.2008 deleted the entire addition. Further in A.Y. 05-06, AO made the addition by disallowing the loss on sale of Mustard D Oil Cake. However, ITAT Jaipur Bench accepted the trading results declared by the assessee vide ITA No. 599/JP/10 dt. 25.02.2011 (PB 379-388, Para 2.7, Page 3-5 of the order). It is to be further noted that in assessee s sister concern M/s Deepak Vegpro Pvt. Ltd. M/s Vijay Industries, AO made trading addition by making similar observations in A.Y. 06-07. However, ITAT Jaipur Bench vide ITA No.361/JP/11 dt. 21.10.2011 (PB 389-415, Para 23, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t deleting the addition of ₹ 10,20,73,725/- made on account of deemed dividend under section 2(22)(e) of the I.T. Act. 13. Brief facts of the case are that assessee company holds 39.10% shares (2,92,000/7,46,770*100) of M/s Deepak Vegpro (P.) Ltd. 25.10% shares (2,47,500/9,85,670*100) of M/s Saurabh Agrotech (P.) Ltd. It has regular business transactions with M/s Deepak Vegpro (P.) Ltd. M/s Saurabh Agrotech (P.) Ltd. as evident from the copy of ledger account placed at PB 49-147 152-211 respectively. 14. The AO observed that though the assessee company had made purchases from M/s Deepak Vegpro (P.) Ltd. M/s. Saurabh Agrotech (P.) Ltd. but the closing credit balance of ₹ 5,59,32,019/- ₹ 2,68,77,150/- of M/s Deepak Vegpro (P.) Ltd. M/s Saurabh Agrotech (P.) Ltd. respectively in its books of account is not on account of such purchases rather the same is on account of receipt of cheques from M/s Deepak Vegpro (P.) Ltd. M/s Saurabh Agrotech (P.) Ltd. respectively. 15. Accordingly, AO by relying on various decisions held that provisions of section 2(22)(e) is attracted in case of the assessee company therefore he added ₹ 6,77,22,353/- i.e. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are having the business transaction inter-se, which fact has remained undisputed and have also been accepted by the Assessing officer in his assessment order. It is found on verification of the account and on fact that the account of the assessee with the Deepak Vegpro (P) Ltd. and Saurabh Agrotech (P) Ltd are a running, current, open and trade account. The business transactions entered into between the assessee company and Deepak Vegpro (P) Ltd. and Saurabh Agrotech (P) Ltd has been routed through the said account. The assessee company does not have any other account except the account considered by the Assessing Officer. These are the trade account, wherein the trade transaction has been passed through; therefore it is a business and trade account. Now the question arises, whether, the provision section 2(22)(e) of the Income-Tax. Act' 1961 are attracted upon the business of trade transaction. In this regard learned counsel has rightly placed the reliance upon the decision of Hon ble Delhi High Court in the case of CIT V/s Raj Kumar (2009) TIOL 247 (Del.) Trade advance which are in the nature of money transacted to give effect to a commercial transactions would not fall wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormal course of business and are not in the nature of loans or advances, therefore the provision of section 2(22)(e) of the Income-Tax Act' 1961 are not applicable upon such transaction and the Assessing Officer has erroneously considered the same to be covered u/s 2(22)(e) of the Income-Tax Act' 1961. While arriving at this conclusion, reference is also made to the decision of jurisdictional High Court in the case of Commissioner of Income-Tax v/s Maheswari Nirman Udyog 302 ITR 201 (Rajasthan) wherein it has been held that the transaction inter se between the, sister concerns and the assessee could not partake the nature of either deposit or loan even though the interest might have been paid on the same and the same view have been upheld by Income Tax Appellate Tribunal, Bench-Jaipur, Jaipur in the case of Income Tax Officer v/s Mahavir Stores, Alwar ITA No. 1834 1835/JP/981 dated 23.11.1993. Recently Hon ble ITAT G Bench Mumbai in case of DCIT Vs. Gharada Chemical Ltd. in ITA No. 2012/ Mumbai/ 2010 A.Y. 2004-05 order dated 07.01.2001 has held that purchases made from the subsidiary company worth ₹ 31.53 crores were commercial transaction between the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company has received back more than ₹ 100 crores from M/s. Deepak Vegpro Pvt. Ltd. whereas the purchases made from M/s. Deepak Vegpro Pvt. Ltd. to the tune of ₹ 30 crores or odd and similarly sale to M/s. Deepak Vegpro Pvt. Ltd. was ₹ 22 crores or odd. Accordingly, it was explained that the assessee company has received back ₹ 100,94,33,444/- and made payment to M/s. Deepak Vegpro Pvt. Ltd. of ₹ 101,93,85,431/-. Similarly in case of other group companies i.e. M/s. Saurabh Agrotech P Ltd., the AO has noticed similar transactions and found that the assessee has made the payment and received payment from this company also and accordingly, the AO arrived at a conclusion that the assessee has received more money and deeming provisions of section 2(22)(e) are applicable and, therefore, the addition was made. The ld. CIT (A) through has deleted the addition by placing reliance on various case laws and thereafter holding that transactions of the assessee company with M/s. Deepak Vegpro Pvt. Ltd. and M/s. Saurabh Agrotech Pvt. Ltd. are in the nature of trading transactions entered into in the normal course of business, therefore, provisions of section 2(22)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing payment. The respective entries are made in their respective books of accounts in single consolidated account. (i) The brief of the transactions in the books of assessee company with M/s Deepak Vegpro (P.) Ltd. of purchase, sale, payment made payment received during the year under consideration is as under:- (PB 49-147) Purchases from M/s Deepak Vegpro (P.) Ltd. (Cr.) ₹ 3094.93 lacs Payment received on sales made other trade/debt transactions (Cr.) ₹ 10094.33 lacs Total of credit side ₹ 13189.26 lacs Sales to M/s Deepak Vegpro (P.) Ltd. (Dr.) ₹ 2210.38 lacs Payment made on purchases trade/debt transactions (Dr.) ₹ 10193.85 lacs Total of debit side ₹ 12404.23 lacs Balance Credit ₹ 785.03 lacs Opening Debit ₹ 225.72 lacs Closing Credit ₹ 559.31 lacs (ii) The brief of the transactions in the books of assessee company with M/s Saurabh Agrotech (P.) Ltd. of purchase, sale, payment made payment received during the year under consideration is as under:- (PB 152-211) Purchases from M/s Saurabh Agrotech (P.) Ltd. (Cr.) ₹ 2180.52 lacs Payment received on sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... limited to the particular purpose for which it has been enacted cannot assume any role beyond the said restricted confined limit it can never interfere in the normal business of the companies carried out in the ordinary course because if so it will create an anarchic situation whereby no concern can enter into normal business transactions. In order to cover any amount within the provisions of section 2(22)(e) of the I.T. Act, 1961, it is necessary that the amount involved should either be loan or advance . (i) The word advance has not been defined. However, in case of CIT Vs. Raj Kumar 318 ITR 462 (Del.) (HC), it was held that applying the Rule of Noscitur a Sociis which means that the words in an Act of Parliament is to be constructed with reference to the words found in immediate connection with them, the word advance has to be read in conjunction with the word loan . Usually attributes of a loan are that (i) it involves a positive act of lending coupled with acceptance by the other side of the money as loan (ii) generally carries an interest (iii) obligation of repayment. Therefore, the word advance which appears in the company of the word loan could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Balance Sheet. Accounts were prepared perfectly in accordance with the norms set out under the Companies Act, 1956. These were filed with the Registrar of Companies. The chief ingredient of s. 2(22)(e) is that one should be shareholder on the date the loan was advanced to him. Where such ingredient is not established, the advance could not be taken as deemed dividend under s. 2(22)(e). It is settled rule of interpretation of a fiction that the court should ascertain for what purpose the fiction is created and after ascertaining the purpose, the court has to assume all facts which are incidental to give effect to that fiction. It will not be given a wider meaning than what it purports to do. Law dealing with fiction relates to that breach of jurisprudence which should be narrowly watched, zealously regarded and never to be pressed beyond its true limits. Taking into consideration the entire conspectus of the case, the receipt from H Ltd. was in the nature of share application money. It cannot be construed loan or advance. As such, the case of the assessee falls beyond the ken of s. 2(22)(e). AO has invoked section 2(22)(e) only because the account contain transactions of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they related to purchase and sale entered into between the parties or on account of running account. After going through the chart of transaction, we find that this transaction cannot be treated as payment or any sum paid or payable and this payment are not by way of loan or advances and until these conditions are satisfied, provisions of section 2(22)(e) cannot be attracted. The nature of transaction of both the companies is trading and manufacturing of mustard oil and oil cake. In the course of business, both these companies had entered into a series of trade transactions of purchase, sale, making payment and receiving payment. The respective entries are made in their respective books of accounts in single consolidated account. The brief of the transactions have been explained at page 8 of the written submission which are reproduced somewhere above in this order also. On perusal of ledger account of M/s. Saurabh Agrotech Pvt. Ltd. in the books of the assessee company, it is noticed that the nature of transaction between them are business transaction. In case of C1T vs. Raj Kumar, 318 ITR 462 (Del.), the Hon'ble Delhi High Court has held that applying the rule of Noscitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... feature of a running account and a loan account in a subtle manner. The Limitation Act, 1963 recognizes the running character of a mutual, open and current account by taking the last acknowledged transaction as the starting point of limitation. But in case of the loan, once for all and single transaction, that single transaction itself is the starting point of the limitation. This statutory distraction reflected in the Limitation Act, 1963 is a pointer towards the basic difference between a running account and a loan account. Whenever payments made by a Ltd. Co. to its shareholder is proved by the characteristic as other than loan/advance; in other words, the payment is for the purpose of repayment of loan or such other existing liability, the question of s. 2(22)(e) applying, does not arise. The nature and character of the payments made by a company is very important in examining whether a payment made by the company falls u/s 2(22)(e) or not. Where a company pays to its shareholder any amount against repayment of an existing loan or advance or against purchase or availing of service or paying on account on any other grounds, such payments made in the ordinary course of carryin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eholding pattern, these financial transactions would fall in the category of deemed dividend u/s 2(22)(e) of the I.T. Act. This view was upheld by CIT(A). Tribunal was of the view that there is nothing on record to show that the amount considered by the AO were in any manner advances or loans in the account of the assessee. Being a travel agency, it had regular business dealings with the above two concerns dealing with holiday resorts tourism industry. Therefore, since the transactions were normal business transactions, they can not be described as loans or advances which form a distinct category of financial transactions. Therefore, provisions of section 2(22)(e) are not at all applicable. High Court held that it is clear, that the assessee was a travel agency the above two concerns that it had dealings with i.e. M/s Holiday Resort (P) Ltd. M/s Ambassador Tours (India) (P.) Ltd. were also in tourism business. The assessee was involved in booking of resorts for the customers of these companies entered into normal business transactions as a part of its day-to-day business activities. The financial transactions can not in any circumstances be treated as loans or advances r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he money was loaned or kept deposited for a fixed period or repayable on demand. Further, the sister concerns and the assessee are owned by the same family group with a common managing partner with centralized accounts under the same roof. Transfer of funds has taken place in a whimsical manner. Therefore, it is rather difficult to say that the transactions are in the nature of the deposits or loans with certain conditions attached to them, either as regards the period of such deposits or loans or with regard to their repayments. From the copies of the accounts furnished all that can be gathered is that funds have been transferred from and to the sister concerns as and when required and since the managing partner is common to all the sister concerns, the decision to transfer the funds from one concern to another concern or to repay the funds could be said to have been largely influenced by the same individual. In other words, the decision to give and the decision to take rested with either the same group of people or with the same individual. In such circumstances of the case, it is held that the transactions inter se between the sister concerns and the assessee cannot partake of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Mancheri Puthusseri Ahmed Vs. Kuthiravattam Estate Receiver AIR 1997 SC 208, in so constructing the fiction, it is not to be extended beyond the purpose for which it is created or beyond the language of the section by which it is created. By enacting section 2(22)(e), the legislature has created a fiction has made the payments referred to therein dividend for the purpose of income tax, but the fiction cannot be extended further or so interpreted as to go beyond the legislature s intention in creating the fiction. CIT Vs. Creative Dyeing Printing P. Ltd. 318 ITR 476 (Del.) (HC) The assessee-company was engaged in the business of dyeing and printing of cloth and was an ancillary unit of P. Both the assessee company and P had common shareholders and directors, two of whom held more than 20% of the shares in both companies and P held 50% of the shares in the assessee-company. P, in order to increase its export business and to compete with the international standards in garments exports proposed modernization and expansion of the plant and machinery of the assessee-company. The assessee-company being unable to invest such a large amount, P agreed to invest 50% of the projec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 35.2 at pages 12 to 26 as under :- 33. We have heard rival submissions and considered them carefully. After considering the submissions and perusing other material on record, we find that there is no infirmity in the finding of ld. CIT (A). Detailed written submissions which are similar to the written submissions filed before ld. CIT (A) are as under :- (1) Section 2(22)(e) is attracted when any payment is made by a closely held company of any sum by way of loans or advances to a beneficial shareholder holding not less than 10% of the voting powers. This is a deeming fiction whereby payment of any sum by way of loan or advance is deemed as dividend. Therefore, this provision needs to be construed strictly. For applicability of this section, following conditions should be satisfied:- (iv) There should be a payment (v) Payment should be of a sum (vi) Such payment should be by way of loan or advance Unless Until all the above conditions are satisfied, deeming fiction would not be attracted. In the present case, the nature of business of both the companies is trading manufacturing of mustard oil and oil cake. In the course of business, both the companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made in normal course of business can by no stretch of imagination partake the character of a payment by way of loans or advances. The deeming provisions of law contained in section 2(22)(e) being very much confined limited to the particular purpose for which it has been enacted cannot assume any role beyond the said restricted confined limit it can never interfere in the normal business of the companies carried out in the ordinary course because if so it will create an anarchic situation whereby no concern can enter into normal business transactions. In order to cover any amount within the provisions of section 2(22)(e) of the I.T. Act, 1961, it is necessary that the amount involved should either be loan or advance . (i) The word advance has not been defined. However, in case of CIT Vs. Raj Kumar 318 ITR 462 (Del.) (HC), it was held that applying the Rule of Noscitur a Sociis which means that the words in an Act of Parliament is to be constructed with reference to the words found in immediate connection with them, the word advance has to be read in conjunction with the word loan . Usually attributes of a loan are that (i) it involves a positive act of lendin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lotment of shares. There is nothing on record to indicate that application money was received or allotment of shares was made contrary to the provisions of Companies Act, 1956. The amount was reflected as such in the Balance Sheet. Accounts were prepared perfectly in accordance with the norms set out under the Companies Act, 1956. These were filed with the Registrar of Companies. The chief ingredient of s. 2(22)(e) is that one should be shareholder on the date the loan was advanced to him. Where such ingredient is not established, the advance could not be taken as deemed dividend under s. 2(22)(e). It is settled rule of interpretation of a fiction that the court should ascertain for what purpose the fiction is created and after ascertaining the purpose, the court has to assume all facts which are incidental to give effect to that fiction. It will not be given a wider meaning than what it purports to do. Law dealing with fiction relates to that breach of jurisprudence which should be narrowly watched, zealously regarded and never to be pressed beyond its true limits. Taking into consideration the entire conspectus of the case, the receipt from H Ltd. was in the nature of share ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the limitation. This statutory distraction reflected in the Limitation Act, 1963 is a pointer towards the basic difference between a running account and a loan account. Whenever payments made by a Ltd. Co. to its shareholder is proved by the characteristic as other than loan/advance; in other words, the payment is for the purpose of repayment of loan or such other existing liability, the question of s. 2(22)(e) applying, does not arise. The nature and character of the payments made by a company is very important in examining whether a payment made by the company falls u/s 2(22)(e) or not. Where a company pays to its shareholder any amount against repayment of an existing loan or advance or against purchase or availing of service or paying on account on any other grounds, such payments made in the ordinary course of carrying on of the business of that company cannot be brought under the purview of s. 2(22)(e). That is why s. 2(22)(e) provides that any payment by a company by way of advance or loan to a shareholder alone is to be considered for the purpose if deemed dividend. Payments made by a company through a running account in discharge of its existing debts or against p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regular business dealings with the above two concerns dealing with holiday resorts tourism industry. Therefore, since the transactions were normal business transactions, they can not be described as loans or advances which form a distinct category of financial transactions. Therefore, provisions of section 2(22)(e) are not at all applicable. High Court held that it is clear, that the assessee was a travel agency the above two concerns that it had dealings with i.e. M/s Holiday Resort (P) Ltd. M/s Ambassador Tours (India) (P.) Ltd. were also in tourism business. The assessee was involved in booking of resorts for the customers of these companies entered into normal business transactions as a part of its day-to-day business activities. The financial transactions can not in any circumstances be treated as loans or advances received by the assessee from these two concerns. CIT Vs. Idhayam Publication Ltd. 285 ITR 221 (Mad.) (HC) This case though related to section 269SS but the facts of this case was that assessee company was having running current account with its Director, the Director use to pay the money as well as withdraw from that account, no interest is charged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Maheshwari Nirman Udhoyg 302 ITR 201. DCIT Vs. Lakra Brothers 106 TTJ 250 (Chand.) (Trib.) The important words in section are loan or advance for the individual benefit of such shareholders. Loan is something different from debt. For a loan there must be a lender, borrower as well as a contract/agreement between the parties for the return of the loan amount. Every sale of goods on credit does not amount to a transaction of loan. In the case of assessee, there was a debit balance on account of the advance paid by AEPL and this was purely advance during the ordinary course of business for business expediencies. It cannot be said that there was intention of the company to give a loan. AO has never doubted the sequence of market service, exhibition at hotel and execution of orders in pursuance of the advance. It would have been a different story if AEPL would have made the payment by way of loan or advance to the partners of the assessee not for the purpose of the business, but for their individual benefit. No specific defect has been pointed out in the conclusion of the CIT(A) the same is upheld. Sri Satchindananad S. Pandit Vs. ITO 19 SOT 213 (Trib.) (Mum.) It w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anced for business transaction between the assessee-company and P did not fall within the definition of deemed dividend under section 2(22)(e). The transaction of cheque received cheque paid in present case, in the normal course of business are neither transaction of loan nor a transaction of advance. These transactions are not attached with any obligation. In the mutual interest amounts are transferred between the two concerns considering the availability of limit with the particular concern. The transactions are entered in commercial expediency not with the purpose of making payment by way of loan or advance. The various cases relied by the AO are therefore distinguishable as tabulated on Page 15-17 of the CIT(A) order. Hence, in view of the decisions relied above, section 2(22)(e) is not attracted to such transactions. CIT(A) has therefore rightly deleted the addition. 34. The written submissions which are similar to the written submissions filed before ld. CIT (A) were considered by ld. CIT (A) land thereafter the ld. CIT (A) has given the following finding:- I have considered the submissions of the learned counsel thoroughly and perused the assessment order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. In this regard learned counsel has rightly placed the reliance upon the decision of Hon ble Delhi High Court in the case of CIT V/s Raj Kumar (2009) TIOL 247 (Del.) Trade advance which are in the nature of money transacted to give effect to a commercial transactions would not fall within the ambit of the provisions of Section 2(22)(e) of the Act - Revenue's appeal dismissed. While delivering the judgment, Hon ble Delhi High Court has distinguished the decision of Apex Court in the case of P.Sharda and Tarti Lata Shayam. It has also recently been held by Hon ble Delhi High Court in case of CIT Vs. Ambassador Travels (P) Limited (2008) 173 Taxman 407 (Del.) that the assessee was involved in the booking of resorts for the customers of these company and entered into normal business transaction as a part of its day-to day business activities. The financial transaction cannot in any circumstances be treated as loans or advances received by the assessee from these two concerns. Decision of Hon ble Delhi High Court was again recently followed by the same High Court in the case of CIT v/s Creative Dyeing Printing (P) Limited (2009) TIOL 532 (Del.) wherein it has been held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of tax liability, the depreciation as per the income tax and possess accumulated profit have remained merely of academic interest therefore, no finding thereupon have been given. 35. After considering the above findings of ld. CIT (A) and the written submissions of the assessee which are also reproduced somewhere above in this order, we find that ld. CIT (A) has examined the issue extensively and then found that the transaction does not relate to either loan or advances. Therefore, provisions of section 2(22)(e) are not attracted. While holding so, the ld. CIT (A) has taken into consideration various case laws relied upon before him which are also relied on here before the Tribunal and then only concluded that the addition made by AO was not justified. The ld. CIT D/R except placing reliance on the order of AO and placing reliance on the decision of Hon ble Madras High Court, could not controvert the finding of ld. CIT (A). The ld. CIT D/R could not bring any material that how the transaction entered into between the assessee and the other companies are akin to loan and advances. The nature of transaction clearly established that they related to purchase and sale enter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business in nature and, therefore, they do not fall within the ambit of section 2(22)(e). In view of these facts and circumstances and in view of the detailed reasoning given by ld. CIT (A) which is reproduced somewhere above in this order, we hold that ld. CIT (A) was justified in deleting this addition. Accordingly we confirm the order of ld. CIT (A) in this respect. After going through the order of the Tribunal and submissions of both the parties, we find that facts and circumstances of the transactions are identical to the case of M/s. Deepak Vegpro Pvt. Ltd. (supra). In case of M/s. Deepak Vegpro Pvt. Ltd. also the addition was made for assessment year 2006-07. In case of M/s. Deepak Vegpro Pvt. Ltd., we have already held that the transactions are business in nature. Therefore, a finding has already been given for the year under consideration as in that case also the addition was made on account of transaction with the assessee i.e. M/s. Vijay Solvex Pvt. Ltd. and other company M/s. Saurabh Agrotech. Various case laws relied upon by ld. Counsel has already been considered by us while deciding the appeal in case of M/s. Deepak Vegpro Pvt. Ltd. The cases on which reliance ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considering the orders of the AO and ld. CIT (A), we again find no infirmity in the finding of ld. CIT (A). We noted that expenditure incurred under this head is exclusively for the purpose of business. The AO has not pointed out any particular expenses which are not for purposes of business. Looking to the turnover of the assessee and other details kept by assessee, we hold that ld. CIT (A) was justified in deleting the addition. Accordingly we confirm his order on this issue also. 30. Ground No. 5 is against deleting addition of ₹ 20,000/- made on account of withdrawal of depreciation on Wind Mill. 31. Brief facts of the case are that during the year under consideration, assessee company claimed depreciation @80% on windmill i.e. ₹ 2,40,000/-. However, AO on the basis of depreciation rates worked out by it in the preceding A.Y. s i.e. 10% on foundation rooms, made disallowance of ₹ 20,000/-. The ld. CIT (A) deleted the disallowance. 32. After considering the orders of the AO and ld. CIT (A), we find that similar addition was made by AO for assessment years 2003-04 and 04-05. Tribunal has decided the issue in favour of the assessee. Similar issue was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eepak Vegpro Pvt. Ltd. also and after considering the arguments and the orders of the authorities below, the Tribunal has given following finding:- 13. After considering the submissions and perusing the material on record, we find that rule 8D is not applicable for the year under consideration as Rule 8D has been held applicable prospectively i.e. from assessment year 2008-09 in the case of Godrej Boyce Mfg. Co. Ltd., 328 ITR 81 (Bombay). 13.1. First submission of the assessee is that ld. CIT (A) was not justified in setting aside the issue to the file of the AO as power of setting aside from the Cit (A) has been taken away by Finance Act, 2001 with effect from 1.6.2001. However, since rule 8D is not applicable and disallowance has to be considered afresh in view of the nexus of exempted income and investment made by assessee for earning exempted income. 13.2. The Hon ble Supreme Court in case of CIT vs. Walfort Share Stock Brokers Pvt. Ltd., 326 ITR 1 (SC) has observed that for attracting section 14A, there has to be a proximate cause for disallowance, which is its relationship with the tax exempt income. 13.3. The assessee through its written submission ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urcation of the same is as under:- Division Amount Oil Division 12,71,864/- Jaipur Glass Potteries 4,39,844/- Goenka Products 16,203/- Total 17,27,911/- AO disallowed 20% out of the same i.e. ₹ 3,45,582/- by holding that the expenditure is not fully vouched is claimed on self made vouchers. Therefore, in the absence of proper bills vouchers these expenses are not subject to verification. CIT(A) restricted the disallowance to 10% i.e. ₹ 1,72,791/- in order to plug the possible leakage of revenue to meet the ends of justice. 42. After considering the orders of the AO and ld. CIT (A), we noted that for assessment year 2004-05 similar additions were made. However, Tribunal while deciding the appeal in ITA No. 599/JP/2010 vide order dated 25.02.2011 in para 3.6 has deleted the disallowance in its entirety. Following the order of the Tribunal, we delete the entire addition sustained by ld. CIT (A). In this way ground of the assessee is allowed and ground of the department fails. 43. Ground No. 8 in appeal of the department is against restricting the disallowance at ₹ 1,02,971/- out of total disallowance of ₹ 2,05,942/-. 44. Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 50,000/- out of ₹ 5,00,000/- made by the AO on account of legal and professional expenses. 54. The assessee has challenged the sustenance of addition by ground no. 8. 55. AO made an addition of ₹ 5,00,000/- against claim of assessee at ₹ 12,04,143/- by holding that assessee has no base for claiming the expenditure/no third party verification of substantial amount is possible. The ld. CIT (A) restricted this disallowance to ₹ 50,000/- just to plug the possible leakage of revenue. 56. After considering the submissions, we find that assessee deserves to succeed in this ground. On perusal of ledger account of legal and professional expenses, it is noticed that the expenditure is incurred on payment of monthly retainership charges to various consultants/professional charges paid for obtaining consultancy/court charges for appearing and arguing the matters at various levels. All the confirmations have been filed. There is no dispute about rendering of services. Therefore, we hold that there is no question of disallowing of ₹ 50,000/- on adhoc basis. Accordingly, we delete the addition. The ground of the assessee is allowed and the ground of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion can t be made during the year under consideration. It is to be noted that in subsequent years, the liability in respect of following creditors has been paid. The details of the same is as under:- S.No. Name of the Party Opening Balance Date of Payment 1. Shivam Securities- Cr. For exp (PB 212) 19,489/- 19.03.2009 2. Manohar Lal Kejriwal- Broker (PB 213) 2,094/- Running account 3. Jiwa Ram -Broker (PB 214) 1,803/- Running account 4. Elkay Company- Broker (PB 215) 4,745/- Running account TOTAL 28,131/- In respect of remaining creditors, the amount is payable. There is no material with the lower authorities to presume that liability has ceased to exist. Hence, addition made u/s 41(1) is uncalled for. Reliance is placed on the following cases:- CIT Vs. Sadul Textiles Ltd 167 ITR 634 (Raj) It was held that amounts representing unclaimed bonus and unclaimed wages though timebarred had not resulted in remission or cessation of trading liability and hence could not be taxed under section 41(1) of the Income-tax Act, 1961. Goodricke Group Ltd. Vs. CIT 338 ITR 116 (Cal.) (HC) The words obtained, whether in cash or in any other manner, whatsoever, any amount in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 292 ITR 310 (Madras) It was held that the assessee had continued to show the admitted amount of ₹ 8,22,925 as liability in the balance-sheet. The undisputed fact was that it was a liability reflected in the balance-sheet. Once it was shown as liability by the assessee, the Commissioner was wrong in holding that it was assessable under section 41(1) of the Act. Unless and until there is a cessation of liability, section 41(1) is not applicable. Uttam Air Products (P) Ltd Vs DCIT 99 TTJ 718 (Del) It was held that, the balance of the creditor was outstanding in the books of the assessee for a considerable period of time. The essential dispute is as to whether in the absence of any written off by the assessee and also in the absence of any tangible proof of the supplier having given up its claim, the revenue is not justified in ignoring the liability and making out a case for cessation of liability, when it is undisputed that the same has been shown in the balance sheet as creditor, indicating thereby that the amount stood payable. ITO Vs R B Sethi Moolchand Nemichand (P) Ltd 14 ITD 473 (JP)(TM) It was held that admittedly the amount had not been transferred to the P ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
