New User   Login      
Tax Management India .com TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2016 (9) TMI 55 - ITAT AHMEDABAD

2016 (9) TMI 55 - ITAT AHMEDABAD - TMI - Disallowance under Section 40(a)(ia) in the absence of details - Held that:- From going through the submissions of ld. AR we understand that the only reason for which ld. Assessing Officer has not allowed the deduction that there is no record about the type of expenditure of ₹ 14.40 lacs as the same has been mentioned as miscellaneous expenses and if an expenditure on which TDS is not required to be deducted then such expenses cannot be allowed in t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

67,34,004/- satisfy all the conditions as provided u/s 32 of the Act and, therefore, are eligible for depreciation - Disallowance on depreciation on the assets treating them capital working in progress - Held that:- On the examination of the detailed annexure-3 at page 188 of the paper book there appears details of assets costing ₹ 27,83,223/- which were transferred from capital work in progress to fixed assets a/c. under plant & machinery head and were put to use on 3rd May, 2008. Si .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d some assets which were forming of capital work in progress upto previous year were now shifted under the block of assets for the purpose of claiming depreciation. We are of the view that remark of statutory auditors has to be seen in totality that Annexure-3A of the same assets duly certified by the same auditor giving bifurcation of each and every assets to the date of its being put to use and above all the depreciation for the year claimed by the assessee is also duly certified by the same a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

assets - Held that:- Respectfully following the judgment of Hon. Jurisdictional High Court in the case of CIT vs. Abdul Razak & Co. (1981 (2) TMI 27 - GUJARAT High Court), we are of the considered opinion that sundry debit balance written off for ₹ 56,000/- should be allowed as a revenue expenditure. This ground of assessee is allowed - Deduction u/s 40(a)(ia) - Held that:- As in the given circumstances when there is no dispute to the genuineness of the expenditure which proves that t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n which due taxes (TDS) are deposited. By claiming this expenditure of ₹ 36.3 in this year there is no impact to the Revenue in terms of tax liability. We are, therefore, of the view that assessee should be allowed deduction u/s 40(a)(ia) of the Act for ₹ 36.3 lacs and therefore, no interference is called for in the order of ld. CIT(A) with respect to this ground. Accordingly this ground of Revenue is dismissed. - TDS u/s 192 or 194H - Whether commission or brokerage paid to Chai .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

whole time directors should have been treated as an incentive in addition to salary, bonus and other perquisites and they do not fall under the purview of sec.194H or 194J. It is true that tax is deductible on such commission at the rate prescribed u/s 192 of the Act, since such commission is nothing but part of salary and the appellant has failed to deduct such tax. However, provisions of sec.40(a)(ia) of the Act do not cover expenditure subject to tax deductible u/s 192 of the Act. We are the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of the Act and, therefore, no disallowance is called for u/s 40(a)(ia) of the Act - Disallowance on account of interest on non interest bearing advance - Held that:- We find that assessee company is dealing with edible oil and non-edible oil and the gross turnover of ₹ 1478.7 crores and profit before taxes at ₹ 13.49 crores. We further observe that reserve and surplus of ₹ 42.56 crores stood along with 6.47 crores as capital as on 31/3/2008. We also observe that total of sh .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ries is concerned, we find that assessee is regularly purchasing non-edible oil on exclusive basis and if we analyse the advances standing at the end of the month with the monthly sales of the assessee company, we find that the monthly sales of the company are approx. ₹ 120 crores and the closing balance of M/s N. K.Indus. is approx. ₹ 10 crores. These transactions are undoubtedly business transactions and there is no evidence on record to show that these are interest free advances. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

r seems to be a normal business advance looking to the over all financial volume of assessee company and do not call for any disallowance of interest. Similarly in the case of Guru Commodities and Pearl Energy calling debit balances of ₹ 25000/- and ₹ 646627/- are also old advances and revenue has also not brought on record any evidence to prove that these are non-business advances, we are of the view that in the given facts and circumstances of the case where assessee has sufficient .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the order of ld. CIT(A). In the result, appeal of Revenue is dismissed. - ITA No.1986/Ahd/2012, ITA No.2133/Ahd/2012 - Dated:- 27-7-2016 - Shri Rajpal Yadav, JM, & Shri Manish Borad, AM. For The Appellant : Shri S. N. Soparkar, AR For The Respondent : Shri Prasoon Kabra, Sr.DR ORDER PER Manish Borad, Accountant Member. These cross appeals are directed against the order of ld. CIT(A)-XI, Ahmedabad dated 26.7.2012 in appeal No.CIT(A)- XI/368/Addl.CIT.R-5/11-12, passed against order u/s 143(3) .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

kers on the ground that they are not used for business in as much as all the five tankers have been hired to N.K. Roadways P. Ltd. and that the said company has in fact used the tankers as per evidence furnished and that the hire charges was not charged through oversight which was offered voluntarily for taxation. 2.1 The appellant says and submits that the learned CIT(A) is not correct in observing that the evidences furnished are internal. In fact, the evidences furnished are from N.K. Roadway .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ed in the plant & machinery and electrical installation and the said assets have been used during A.Y. 2009- 2010 as per the details provided in the chart of depreciation. 4. The learned CIT(A) has erred in confirming the disallowance of ₹ 1,13,521 under section 14A in as much as the investment is made out of interest free funds and that # the assessee has not incurred any expenditure on investments. 4.1 The appellant says and submits that only transaction is the purchase of shares wor .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ords are that the assessee is a limited company engaged in the business of manufacturing edible and non-edible oil products. Return of income for Asst. Year 2009-10 was filed on 30.09.2009 declaring total income of Ra.19.40 crores (approximately) and book profit u/s 115JB of the Act at ₹ 13.33 crores (appeoximately). The case was selected for scrutiny assessment and notice u/ 143(2) of the Act was issued on 19.8.2010. Various informations were called for and duly complied by the assessee. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of this appeal read as under :- 1. The learned CIT(A) has erred in confirming the disallowance of 14,40,000/- under Section 40(a)(ia) in the absence of details. 6. During the course of assessment proceedings ld. Assessing Officer denied the claim of assessee of ₹ 14,40,000/- as miscellaneous expenses u/s 40(a)(ia) of the Act. Ld. AR submitted that prior period expenditure of ₹ 14.40 lacs was claimed as miscellaneous expenses under the provisions of section 40(a)(ia) of the Act, as t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

penses were not required to be disallowed as per section 40(a)(ia) of the Act in the first instant the same cannot be disallowed in this year. 7. On the other hand, ld. DR supported the orders of lower authorities. 8. We have heard the rival contentions and perused the material on record. In this ground the issue relates to allowability of deduction of prior period miscellaneous expenditure of ₹ 14.40 lacs which have been claimed in the year of appeal on the basis of depositing due TDS as .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ch ld. Assessing Officer has not allowed the deduction that there is no record about the type of expenditure of ₹ 14.40 lacs as the same has been mentioned as miscellaneous expenses and if an expenditure on which TDS is not required to be deducted then such expenses cannot be allowed in this year as they pertained to earlier years. 10. We are, therefore, of the view that this issue needs to be set aside to the file of Assessing Officer before whom necessary details will be supplied by the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

icient opportunity of being heard on the issue. This ground is allowed for statistical purposes. 11. Ground No.2 of the appeal reads as under :- 2. The learned CIT(A) has erred in confirming the disallowance of depreciation of ₹ 16,83,501 on five tankers on the ground that they are not used for business in as much as all the five tankers have been hired to N.K. Roadways P. Ltd. and that the said company has in fact used the tankers as per evidence furnished and that the hire charges was no .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

6,83,501/- was claimed on purchase of 5 trucks (tankers) for a total cost of ₹ 67,34,444/- and were put to use on 31.3.2009 i.e. at the end of the year. Ld. Assessing Officer further observed that various documents provided by assessee to prove that assets were put to use during Asst. Year 2009-10 were internal evidences only which included supplementary memorandum of understanding between the assessee and N. K. Roadways, consolidated bills were raised to N. K. Roadways for fuel charges an .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e appellate proceedings. It is seen that the appellant is placing heavy reliance on the RC Books of the five trucks in question which indicate that these trucks were registered on or before 31/3/2009. To prove the fact that these trucks were used for the purposes of business, the appellant is placing reliance on the diesel bills raised by N.K. Roadways Pvt. Ltd. The appellant has also placed reliance on supplementary MOU entered with M/s.N.K. Roadways Pvt. Ltd. wherein these trucks were shown as .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

td. is a sister concern, which is engaged in transportation business. Making convenient entries in the books of accounts of M/s. N.K. Roadways Pvt. Ltd. towards the diesel expenses is not difficult. Otherwise also, in the normal course of business N.K. Roadways Pvt. Ltd. is purchasing diesel on day today basis. This way the evidence furnished by the appellant towards the purchase of diesel does not prove the fact that the trucks-were used for the purpose of business. The mere purchase of diesel .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

fact that the appellant has not declared any income towards truck hire charges. During the appellate proceedings the appellant submitted that income of ₹ 31,936/- is voluntarily declared as hire charges. The above mentioned facts makes the case of the appellant very weak as the appellant has purchased the trucks towards the fag end of the year, internal evidences towards diesel purchase has been filed, the trucks were leased out to M/s. N.K.Roadlines Pvt. Ltd. through a supplementary memor .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

on 27.3.2009 and hired to M/s N. K. Roadways. Further Assessing Officer has mentioned that only internal evidences were provided to prove that assets were put to use in the year, was not correct because assessee has placed on record copy of purchase bill, goods carriage permit issued by Regional Transport Office, insurance of vehicle, certificate of fitness and copy of RC book on Form No.23 along with Pollution Under Control (PUC) certificate. All these evidences are external evidences and the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

val contentions and perused the material on record. Through this ground assessee has challenged the order of ld. CIT(A) confirming the disallowance on depreciation of ₹ 16,83,501/- on 5 tankers on the ground that they were not put to use for business purposes before the close of the year. From going through the pages 99 to 131 of the papar book dated 6.11.2015 we find that assessee has placed copies of goods carriage permit, vehicle insurance, certificate of fitness, certificate of registr .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

which are exhibited at Annexure-A of the Paper Book. There is no dispute raised by Revenue in regard to depreciation in respect of these vehicles. Further supplementary deed to the Memorandum of Understanding dated 31.3.2008 was executed on 15th November, 2008 wherein assessee agreed for giving on hire the trucks or tankers purchased by it during financial year 2008-09. Impugned 5 trucks which were purchased on 27.3.2009 and were ready to use also form part on the supplementary agreement. We fur .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

a huge amount for the manufacture of the product, be has to plan it properly. Installation of machinery or plant and machinery in the building itself is not sufficient to attract the provisions contained in Section 32of the Act. There must be use of plant and machinery for the purpose of business as contemplated in Section 32 of the Act. There is thus a thin line between the trial run and actual production, or many a time, the word used is "commercial production". If the machines are .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ee was required to instal any additional part or machinery with a view to run the entire unit. It is not a case similar to that case where before the Bombay High Court there was no production and only tools were tested. The present case is not similar to that of Speciality Paper Ltd. (1982] 133 ITR 879 (Guj) (Appex.) where wet press was required to be installed and even thereafter additional machinery was required to be installed. In the instant case, plant and machinery were installed and it wo .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

benefit. Law only requires that there must be use of plant and machinery for the purpose of business. Use of such words that plant and machinery was run more extensively or was required to be used for larger production is not to be found in the Act or Rules. Whether the plant and machinery were up to the extent of its efficiency is irrelevant for the purpose of deciding depreciation. The test is that building, plant and machinery are used for the purpose of business. It is not even necessary tha .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

that provision is made, plant, machinery and building used for the purpose of business in a particular year irrespective of the number of days for which it worked, and if worked for the purpose of business, would attract the provisions of Section 32 of the Act. 18. Respectfully following the decision of Hon. Jurisdictional High Court in the case of ACIT vs. Asima Syntex (supra) discussed above, we are of the view that as the assessee has proved beyond doubt that the impugned assets consisting of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

way of note in Auditors Report in Form No. 3CD in as much as the WIP of ₹ 138.49 lacs in the opening .balance which is included in the plant & machinery and electrical installation and the said assets have been used during A.Y. 2009- 2010 as per the details provided in the chart of depreciation. 20. Assessing Officer disallowed depreciation of ₹ 4,64,850/- on plant and machinery and electrical installation on the ground that as per the auditors report these items were included in .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ervation pertains to 31/3/2008. I have perused Annexure-3 to Form No.SCD which consist of WDV and allowable depreciation for the A.Y.2009-10. In this annexure the auditors has observed as under :- "Additions during the year includes an amount of ₹ 30.99 lacs which has been qualified under capital work-in-progress in the financial statement." It is also observed that the details of capital work-in-progress has been elaborated in Annexure C to the balance sheet for the year ended o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

; 1,07,49,986/-. It also includes capital work-in-progress under the heads Plant & Machinery and Electric installation of ₹ 30,99,206/-. The auditors in the balance sheet relevant for A.Y.2009-10 had not classified building capital work-in-progress as on 3173/2009. The A.O. had agreed with the observations of statutory auditors and has not disallowed depreciation against capital work-in progress under the head buildings. It is interesting to note that the auditors has specifically ment .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

not be accepted as capital work-in-progress as on 31.3.2008 was ₹ 1,38,49,192/- while the auditors has certified capital work-in-progress as on 31.3.2009 at ₹ 30,99,000/-. Since the auditors had made specific comments which remains uncontroverted, accordingly, I am inclined to agree with the contentions of Ld. A.O. In view of above facts, disallowance of depreciation of ₹ 4,64,815/- is confirmed. This ground of appeal is dismissed. 21. Aggrieved, assessee is now in appeal befor .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ant and machinery was at ₹ 27,83,223/- and ₹ 3,15,984/- under electrical installation head. These two totals to ₹ 30,99,207/-. These two items were part of the total capital of work in progress as on 31.3.2008 shown at ₹ 1,38,49,192/-, the impugned work in progress of ₹ 30,99,207/- were put to use for the business during F.Y.2008-09 in the month of May, 2008. In the statutory auditor of the company in annexure-3 of form No.3CD of F.Y.2008-09 relate to depreciation a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

have been duly certified by the auditors. Therefore, disallowance of ₹ 4,64,850/- needs to be deleted. Ld. AR further referred to letter dated 28.5.2012 placed before ld. CIT(A) for supporting the claim that depreciation of ₹ 4,64,850/- on electrical installation and plant & machinery should be allowed and the same reads as under :- "5.Depreciation OH Electrical Installation and Plant & Machinery of ₹ 4,64,850: 5.1 The learned AO has disallowed depreciation on ele .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

not a closing balance. The Annual Report for the year ended on 31st March, 2008 and 31st March, 2009 are enclosed. The opening and closing balance are reconciled as under: . Plant & Machinery: - Closing Balance as on 31-03-2008 ₹ 1932.30 lacs Plant & Machinery included in WIP last year ₹ 27.84 lacs Opening Balance as on 01-04-2008 ₹ 1960.14 lacs Electrical Installation: Closing Balance as on 31-03-2008 ₹ 141.83 lacs Electrical installation included in WIP last ye .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e have heard the rival contentions and perused the material on record. Through this ground assessee has challenged the order of ld. CIT(A) sustaining the disallowance of depreciation of ₹ 4,64,850/- on the impugned assets of ₹ 30.99 lacs by treating them as work in progress. In order to examine the facts relating to impugned assets of ₹ 30,99,207/- we find that this amount comprises of ₹ 27,83,223/- towards plant & machinery and ₹ 3,15,984/- towards electrical i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the paper book at Annexure-3. This Annexure-3 is further supported by Annexure-3A showing itemwise details of addition to block of assets with the column no., sl.no., detail of assets, amount, date of putting to use and assets held more than 180 days or less than 180 days. On this examination of this detailed annexure-3 at page 188 of the paper book there appears details of assets costing ₹ 27,83,223/- which were transferred from capital work in progress to fixed assets a/c. under plant &a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

es some assets which have been purchased during the year and some assets which were forming of capital work in progress upto previous year were now shifted under the block of assets for the purpose of claiming depreciation. We are of the view that remark of statutory auditors has to be seen in totality that Annexure-3A of the same assets duly certified by the same auditor giving bifurcation of each and every assets to the date of its being put to use and above all the depreciation for the year c .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s much as the investment is made out of interest free funds and that # the assessee has not incurred any expenditure on investments. 4.1 The appellant says and submits that only transaction is the purchase of shares worth ₹ 17,85,000 of N.K. Industries Ltd. [NKIL] during the whole year, therefore the question of disallowing any expenditure does not arise since there is no expenditure incurred therefore. 25. Disallowance u/s 14A of the Act of ₹ 1,13,521/- made by ld. Assessing Officer .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tilities and Power Ltd 313 ITR 340 (Bom). 7.3 It is a matter of fact that the provision of rule 8D has come into effect from the A.Y.2008-09 onwards. As per the provisions of sec.14A(2) r.w. rule 8D, the Income tax Act has clearly provided for disallowance under rule 14A as per the computation elaborated in rule 8D of the I.T. Rules, 1962. Provisions of 14A(2) r.w. rule 8D does not prescribe any exceptions. In fact provisions of Sec.14A(3) makes it very clear that even in the cases where appella .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

R submitted that the issue is squarely covered in favour of assessee by the judgment of Hon. Gujarat High Court in the case of CIT vs. Corrtech Energy P. Ltd, reported in [2015] 372 ITR 97 (Guj.), Counsel for the Revenue submitted that the Assessing Officer as well as CIT(Appeals) had applied formula of rule 8D of the Income Tax Rules, since this case arose after the assessment year 2009-2010. Since in the present case, we are concerned with the assessment year 2009-2010, such formula was correc .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s basis that the tribunal held that disallowance under section 14A of the Act could not be made. In the process tribunal relied on the decision of Division Bench of Punjab and Haryana High Court in case of Commissioner of Income Tax v Winsome Textile Industries Ltd reported in (2009) 319 ITR 204 (P & H) in which also the Court had observed as under (Page 207): "7. We do not find any merit in this submission. The judgement of this court in Abhishek Industries Ltd (2006) 286 ITR 1 (P& .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t; 5. We do not find any question of law arising, Tax Appeal is therefore dismissed. 27. Ld. AR further submitted that there is no exempt income earned by assessee during the year and therefore no disallowance is called for u/s 14A of the Act. 28. On the other hand, ld. DR supported the orders of lower authorities. 29. We have heard the rival contentions and perused the material on record. Assessee is aggrieved with the disallowance u/s 14A of the Act of ₹ 1,13,521/- confirmed by ld. CIT(A .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

High Court are of the view that no disallowance is called for u/s 14A as assessee has not claimed any exempt income in the year under appeal. We hold that ld. CIT(A) was not correct in upholding the disallowance and allow the ground of assessee. 30. Ground no.5 of assessee is as under :- 5. The learned CIT(A) has erred in confirming the disallowance of ₹ 56,000 being the provision for diminution in assets in as much as it is allowable as deduction following the Supreme Court decision in th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ered the rival submissions. It is seen that the appellant has claimed an expense of ₹ 56.000/- under the head "sundry debit balances written off." It is also a matter of fact that these are statedly old balance in the bank accounts and the appellant does not have any transaction with these banks for so many years. The facts on record indicate that the income in respect of the above said bank balances had never been accounted for by the appellant as income in the earlier years. Ac .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

to old balance lying with Bank of Baroda and Bank of Maharashtra Ltd. which were very old accounts. Assessee did not enter into transactions with the said banks and nothing was recoverable from the said banks. Therefore, these balances were written off by claiming them as expenditure in profit and loss account and accordingly reduced them from the gross deposit in Schedule-9 to audited accounts. This type of expenses falls under the category of general expenditure u/s 37 which should have been a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

imed as sundry debit balance written off in the profit and loss account. This ground related to irrecoverable balance with Bank of Baroda and Bank of Maharashtra which were lying in these accounts since last many years and no transaction with the said banks happened to be in past few years. We observe that assessee is a limited company carrying on business for last many years and transactions with the bank is in regular course of business. Some times for business expediencies new bank accounts a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ances written off account is rightly covered under the provisions of section 37 of the Act. We further observe that Jurisdictional High Court in the case of CIT vs. Abdul Razak & Co. (supra) has dealt with similar issue about irrecoverable advances and has held the same to be allowable revenue expenditure by observing as under :- 7. In view of these well accepted legal principles, in our opinion, by necessary implication, either short-term or long-term financing is an integral part of the co .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

goods or it may be a long-term advance if it is for sale of goods. We have, therefore, not been able to appreciate as to how the Tribunal approached the problem as if the financial lending which is involved in the business of commission agency is a seperate and exclusive business and not an integral part of the commission agency business. It is an admitted position here before us that the assessee-firm was doing the business as commission agents and dealers in grocery articles. It is also an adm .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nt businesses, which is not justified. It is no doubt true that in the present case before us the bad debt which has been claimed by the assessee-firm was in respect of advance made to the principal, M/s. Gokaldas Virjibhai of Sangli with whom the said principal had independent dealings. It is also an admitted position that the trading account of M/s. Mohmad Peer Mohmad of Nasik in the books of the assessee-firm was settled and there was no outstanding which had been carried to the sarafi accoun .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

dvances made apart from strictly in the course of the business as factors or commission agents for purchase and supply of goods. It is a matter of surprise how the Tribunal lost sight of the finding made by the ITO that in the course of the business of commission agency, the assessee-firm had advanced money to the constituents who where required to pay interest on such advances. It is no doubt true that the ITO has found that these advances were made to the constituents against the goods receive .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t of his commission agency business. In the present case, however, the ITO has not only found that the assessee-firm was making such advances in the course of commission agency business but the ITO, Rajkot, has also recorded the statement of one of the partners of the assesseefirm where Shri Ahmed Ibrahim Sahigra stated, inter alia, that the firm was carrying on money-lending business at Bombay and no licence was necessary for such business and the transactions were recorded in the common tradin .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

when they post entries for interest in the books, the deponent stated that in the accounts of their constituents they make entries at the end of the accounting period while in the case of other advances, the entries are made when the interests amounts are received. Admittedly, M/s. Mohmad Peer Mohmad of Nasik was the constituent of the assessee-firm. The ITO, Nasik, has also recorded the statement of one of the partner of this debtor-firm, where the deponent-partner has stated that their firm o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

fore, the Tribunal was not justified on the facts and in the circumstances of the case to hold that the advance to M/s. Mohmad Peer Mohmad of Nasik was not in the ordinary course of business of the assessee-firm and merely incidental to it. As held by this court in CIT v. Equitorial Pvt. Ltd. [1974] Taxation 37(3)-82, the debt owed by M/s. Mohmad Peer Mohmad of Nasik was one which sprang directly from the business of the assessee and was allowable as a bad debt, and, consequently, therefore, a t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ed to us is in the affirmative, that is, in favour of the assessee and against the revenue. 35. Respectfully following the judgment of Hon. Jurisdictional High Court in the case of CIT vs. Abdul Razak & Co. (supra), we are of the considered opinion that sundry debit balance written off for ₹ 56,000/- should be allowed as a revenue expenditure. This ground of assessee is allowed. In the result, assessee s appeal is partly allowed for statistical purposes. 36. Now we take Revenue s appea .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n law and on facts in deleting the disallowance of ₹ 91,07,505/- made on account of on account of interest on non interest bearing advance. iv) On the facts and circumstances of the case, the Ld. CIT (A) ought to have upheld the order of the Assessing Officer. v) It is, therefore, prayed that the order of the Ld. Commissioner of Income tax (A) may be set-aside and that of the Assessing Officer be restored. 37. Ground no. (i) of Revenue s appeal is as under - i) The Id, CIT (A) has erred in .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of prior period expenditure was disallowed at the time of framing assessment order by ld. Assessing Officer. In appeal before ld. CIT(A) disallowance of ₹ 36.30 lacs was deleted since assessee has deducted and paid taxes on these expenses and confirmed the disallowance for ₹ 14.4 lacs as no specific details about the type of expenditure incurred were available on record by observing as under- B. Disallowance of ₹ 50.70.317/- It is seen that during the year under consideration .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

per the provisions of sec.40(a)(ia). The A.O. was of the opinion that for allowance of these expenses during the year under consideration as the same has to be debited in the books of accounts in the respective assessment year and the same should have been disallowed in that year u/s.40(a)(ia). After fulfillment of these conditions, the appellant can claim these expenses during the year under consideration after payment of TDS. It is seen that a similar issue has been decided in favour of the a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

, proviso to a section sets out an exception to the scope of section. It craves out an area, out of the area covered by the scope of the section, and takes it away from applicability thereof. As Lush J said, "When one finds a proviso to a section, the natural presumption is that, but for the proviso, the enacting part of section would have included the subject-matter of the proviso." As Lord Macnaghaten observed, 'the proviso may be a qualification of the preceding enactment which .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

o Prasad (1969) 71 ITR 296 (S.C) "where the language is quite clear and no other view is possible, it is futile Jo-go into the question whether the proviso to s. 24(1) operates as a substantive provision or only by way of an exception to s.24(1)". The words of proviso to s. 40(a)(i) also being clear and being free from any ambiguity, and in view of the principle so laid down by the Hon'ble Supreme Court in the case of Jagannath Mahadeo Prasad (supra), this proviso is to be viewed a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

re, the deduction of remuneration and tax in respect of 1990-91 and 1991- 92 is to be allowed in the asst yr. 1995-96, i.e., the year in which the assessee has duly discharged the tax deduction at source obligation in respect of the same." Respectfully following the above said decision I am of the considered view that the following three expenses where provisions of Chapter XVII of the Income-tax should be allowed since the tax deduction and payment obligation on these expenses has been dis .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

had deducted toe taxes and paid the same to the Government Account during the year under consideration. It is interesting to note that appellant has not furnished nature of these expenses. Apparently these expenses does not attract the liability of tax deducted at source as per the provisions of Chapter XVII of I.T.Act. Accordingly, these expenses can neither be disallowed as per the provisions of sec.40(a)(ia) on the first instance in the earlier years u/s.40(a)(ia) and the same cannot be allow .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

hand, ld. AR submitted that expenditure of ₹ 36.3 lacs which was not claimed in earlier years but as during the year under appeal due TDS was deducted and deposited, claiming of these expenditures of ₹ 36.3 lacs were justified. Ld. AR further submitted that even in case these expenses had been claimed in the earlier year they certainly would have been disallowed because as per the provisions of section 40(a)(ia) of the Act no TDS was deducted and deposited and should be allowed only .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

xpenses Rs.19.66 lacs ii) Brokerage & Commission Rs.17.77 lacs iii) Leval professional expenses Rs.2.87 lacs. Rs.36.3 lacs iv) Miscellaneous expenses Rs.14.4 lacs Rs.50.7 lacs 43. We find that ld. CIT(A) sustained disallowance on the amount of ₹ 14.4 lacs towards miscellaneous expenses which we have dealt while adjudicating ground no.1 of assessee s appeal. 44. Now as far as remaining amount of ₹ 36.3 lacs is concerned we find that there is no dispute on the part of Revenue about .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ount of earlier years. 45. We observe that in the given circumstances when there is no dispute to the genuineness of the expenditure which proves that these expenses of ₹ 36.3 lacs were actually incurred in earlier years but could not have been claimed for some reason or other. Even if these expenditure had been claimed, they certainly would have been disallowed u/s 40(a)(ia) of the Act as no tax was deducted and deposited. This exercise of deducting and depositing TDS was carried out in t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

) with respect to this ground. Accordingly this ground of Revenue is dismissed. 46. Ground no.(ii) of Revenue s appeal - ii) The Id. CIT (A) has erred in law and on facts in deleting the disallowance of ₹ 83,98,0007- made on account of non compliance of the provision of Section 194H of the I T Act while making payment of commission to the Directors. 47. During assessment proceedings it was observed by ld. Assessing Officer that commission of ₹ 83.98 lacs was given to the Chairman and .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t convinced and made disallowance of ₹ 83.99 lacs. In appeal before first appellate authority impugned disallowance of ₹ 83,98,000/- was deleted by ld. CIT(A) by observing as under :- 6.3 I have carefully considered rival submissions. It is seen that the A.O. disallowed commission paid to the directors of ₹ 83,98,000/- on the premise that deduction of tax at source on the commission payment was not made as per the provisions of sec.194H of the I.T. Act. It is also observed that .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s remuneration. It is also a matter of record that TDS on directors remuneration has been made by the appellant as per the provisions of sec.192 of the I.T Act. This includes TDS on impugned commission payment of ₹ 83,98,000/-. The TDS was duly deposited to the Govt. account as per the provisions of the I.T. Act, The above facts clearly reveals that the commission was part and parcel of the directors remuneration and in my considered view the appellant has rightly deducted tax on these pay .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ission paid to the directors is part and parcel of salary and the appellant has rightly deducted tax on directors remuneration as per the provisions of sec. 192 of the l.T. Act. In view of above the addition of ₹ 83,98,000/- is untenable. Otherwise also the method adopted by the A.O. is prejudicial to the interest of revenue. As per the provisions of sec.192 of the l.T. Act, TDS on salary is deducted at the rate of almost 30 to 33%. In this case the tax has been deducted at the rate of 33% .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

orted the order of Assessing Officer. 50. On the other hand, ld. AR of assessee submitted that sume of ₹ 83,98,000/- was actually part of salary to the Directors on which TDS was deducted as per section 192 of the Act whereas as per ld. Assessing Officer TDS had to be deducted as provisions of section 194H of the Act. Ld. AR also submitted that provisions of section 40(a)(ia) of the Act are not applicable on the expenditure calling for TDS u/s 192 of the Act and for this reason also no dis .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rds commission to two Directors on which provisions of section 194H were attracted and disallowance was rightly made u/s 40(a)(ia). We observe that salary of ₹ 7.22 lacs and ₹ 7 lacs were paid to Shri Nilesh K. Patel, Chairman and Shri Nimish K. Patel, Managing Director of the company respectively. Similarly, commission of ₹ 41.99 lacs each was shown to the Chairman and Managing Director. We further observe that in Annexure-5 form No.3CD attached to the Tax Audit Report for FY .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d at all with regard to payment of commission or brokerage to directors u/s 192 of the Act at ₹ 4,297,530/- & ₹ 1,460,730/-. 52. Now we observe that there are two questions which need to be answered - (i) Whether commission or brokerage paid to Chairman/whole time Director is part of salary on which TDS is deducted u/s 192 of the Act or it is to be treated as commission/brokerage on which TDS is deductible u/s 194H of the Act ? (ii) Whether provisions of section 40(a)(ia) of the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

purview of sec.194H or 194J. It is true that tax is deductible on such commission at the rate prescribed u/s 192 of the Act, since such commission is nothing but part of salary and the appellant has failed to deduct such tax. However, provisions of sec.40(a)(ia) of the Act do not cover expenditure subject to tax deductible u/s 192 of the Act. We are therefore of the view that the impugned amount of commission/brokerage paid to directors is a part of salary and remuneration to the Chairman and M .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ny assessee- [(i) any interest (not being interest on a loan issued for public subscription before the 1st day of April, 1938), royalty, fees for technical services or other sum chargeable under this Act, which is payable,- (A) outside India; or (B) in India to a non-resident, not being a company or to a foreign company, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid [during the previous year, or in the subseque .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the existing proviso to subclause (i) of clause (a) of section 40 by the Finance (No. 2) Act, 2014, w.e.f 1-4-2015 : Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. Explanation.-For the purposes of this sub-clause,- .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f labour for carrying out any work)], on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, [has not been paid23a on or before the due date23a specified in subsection (1) of section 139 :] [Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) ofsection 139, [thirty per cent of] such sum shall be .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of furnishing of return of income by the resident payee referred to in the said proviso.] Explanation.-For the purposes of this sub-clause,- (i) commission or brokerage shall have the same meaning as in clause (i) of the Explanation to section 194H; (ii) fees for technical services shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9; (iii) professional services shall have the same meaning as in clause (a) of the Explanation to section 194J; (iv) work .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

here is no mention about the payment of salary in these provisions. Therefore, we are of the view that payments on which tax is deductible under section 192 of the Act is out of the ambit of the provisions of section 40(a)(ia) of the Act. 56. In view of our above discussions and in the given facts and circumstances of the case, where the assessee has deducted and deposited the part of TDS during the year and the remaining in the following year on the commission paid to whole time directors which .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rest bearing advance. 58. During the course of his examination of books of account of assessee Assessing Officer came across certain advances on which no interest was charged and ld. Assessing Officer treated as prima facie cause of diversion of interest bearing funds to non-interest bearing advances which was in relation to 4 parties namely - N. K. Industries 8400000 Vipui Industries 600000 Guru Commodities 30000 Pearl Energy 77595 Total 9107595 Reply of the assessee was not found satisfactory .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

erest expenses, following conditions should be fulfilled. (i) The Assessee must have borrowed money (ii) The interest should have been payable (iii) Borrowing should be made for the purpose of business. In my considered view, appellant has fulfilled all the above conditions and accordingly it is entitled to claim deduction u/s.36(1)(iii) of IT. Act against interest payment, Perusal of the assessment order reveals that the A.O. has not challenged basic enabling conditions as laid down u/s.36(1)(i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

be a reason for disallowance of interest. It is well settled principle of law that non charging of interest on interest free advances given by the assessee cannot by itself, be sufficient ground for disallowing interest paid by the assessee on loans taken by it. Reliance in this regard is placed on following decisions: (i) Meenakshi Synthetic Pvt. Ltd. v/s.ACIT (2003) 84 ITD 563 (ii) ACIT v/s. Arunkumar Gupta (2003) 78 TTJ 288 10.5 Perusal of records further reveals that the A.O. has not establ .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nses has to be allowed as the A.O. has not established nexus between borrowings and lendings by the assessee company to the subsidiary company. Further reliance in this regard is placed on the following case laws:- (i) Raj Vikas Quaries and Ind. P.Ltd. v/s. ACIT (1992) 42 TTJ 262 (ii) United Agencies V/s. ITO (1990) 37 TTJ 374 (Ahd.) (iii) CIT v/s.Dhampur Sugar Mills Ltd. (2006) 148 Taxman 321 (All.) (iv) CIT v/s.Radico Khaitan Ltd. 274 ITR 354 (All.) In view of the above decisions, I hold that .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d to discharge his onus and failed to prove that part of interest bearing fund was diverted as non interest bearing funds. 10.7 It is further seen that appellant was having interest free funds of ₹ 49.02 crores (in the form of paid up share capital of ₹ 6.46 crores and reserves & surplus of ₹ 42,55 crores). The A.O. has mentioned that appellant has made interest free loans and advances of ₹ 13.58 crores. Thus, interest free advances made is much below the interest fre .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

fully following the ratio of Hon'ble Mumbai High Court decision in the case of Reliance Utilities & Power Ltd. I am inclined to agree with the contentions of the Id. A.R. 10.8 During the appellate proceedings the appellant submitted that the advance made to M/s. N.K. Industries Ltd. of ₹ 13 crores was for business purposes. The A.O. had clearly mentioned that the appellant is making purchases of ₹ 3 crores per month from the above said company. In view of these facts, I am of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

DR supported the order of ld. Assessing Officer. 61. Ld. AR submitted that disallowance of ₹ 91,07,595/- is in relation to 4 parties out of which major disallowance of ₹ 84 lacs relates to M/s N. K. Industries with whom assessee is carrying out transactions round the year which relates to purchase of non-edible oil. As the transaction with N. K. Industries are of purely business nature, no disallowance of interest was called for on the advance given to this party. As far as other th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rt in the case of Hero Cycles P. Ltd. Vs. CIT(Central), Ludhiana 63 taxmann.com 308 (SC). 62. We have heard the rival contentions and perused the material on record and gone through the judgments relied on by ld. AR. In this ground Revenue has challenged the action of ld. CIT(A) relating to deletion of disallowance of ₹ 91,07,595/- made on account of interest bearing funds and non-interest bearing advances. The issue emanating in this ground is with regard to advances in the name of M/s N. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

#8377; 50 lacs has been shown as deposit and was received back in the subsequent year and in the case of Guru Commodities and Pearl Energy old advances of ₹ 2.50 lacs and ₹ 646627/- were given since about 15 years ago. 63. We find that assessee company is dealing with edible oil and non-edible oil and the gross turnover of ₹ 1478.7 crores and profit before taxes at ₹ 13.49 crores. We further observe that reserve and surplus of ₹ 42.56 crores stood along with 6.47 cr .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

have been accepted by the Revenue. Now as far as M/s N. K. Industries is concerned, we find that assessee is regularly purchasing non-edible oil on exclusive basis and if we analyse the advances standing at the end of the month with the monthly sales of the assessee company, we find that the monthly sales of the company are approx. ₹ 120 crores and the closing balance of M/s N. K.Indus. is approx. ₹ 10 crores. These transactions are undoubtedly business transactions and there is no e .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version