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2016 (9) TMI 108 - ITAT JAIPUR

2016 (9) TMI 108 - ITAT JAIPUR - TMI - Disallowance made out of stores and spare expenses - CIT(A) allowed claim - Held that:- The assessee is following consistent accounting policy whereby insurance claim and recovery of cost towards accessories are accounted for on cash basis due to uncertainty of realization. The amount of insurance claimed received as per breakdown insurance policy taken for the D.G. set amounting to ₹ 32,76,485/- and realization from sale of scrap of damaged turbo cha .....

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smissed the ground of the Revenue. - Disallowance of legal & professional charges treating the same as expenditure for getting a benefit of enduring nature - CIT(A) allowed claim - Held that:- An amount of ₹ 4,40,000/- has been incurred by the assessee towards the environmental study which was undertaken for converting its existing mercury plant into a technological better membrane cell plant. There is nothing on record to confirm that the assessee has actually converted the existing p .....

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tion. In light of above, we do not see any necessity to interfere to the findings of the ld. CIT(A) - Addition in respect of collection of benevolent fund u/s 2(24)(x) - CIT(A) allowed claim - Held that:- The liability of the assessee towards its share of contribution to the benevolent fund for the welfare of the employees has not been disputed. Further the ld. CIT(A) has confirmed that the said contribution has been deposited before due date of filing the return of income, hence in light of .....

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a, coffee, cold drinks etc. for the visitors who have visited the office and factory premises of the assessee. In our view these are routine business expenditure which has been incurred to provide basic hospitality to the technicians and guests who have visited the office and factory premises. - Disallowance in respect of guest house expenses - Held that:- CIT(A) has given a finding of fact that as per tax audit report submitted before him, an amount of ₹ 8,55,975/- which includes  .....

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h Court in the case of CIT Vs. Groz Beckert Asia Ltd (2013 (2) TMI 375 - PUNJAB & HARYANA HIGH COURT ) has held that corporate membership does not bring in the existence an asset or an advantage for enduring benefit to the business. The corporate membership was obtained for running the business. Thus we confirm the order of the ld. CIT(A) who has rightly held that the expenditure incurred on payments to clubs is in the nature of business expenditure - Addition of vehicle expenses - CIT(A) al .....

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ance can be made holding that expenditure has been incurred for the personal purposes. Secondly, the liability for ₹ 1,20,000/- has crystallized during the year and following the mercantile system of accounting, the same cannot be disallowed. In the result, we delete the disallowance ₹ 1,20,000/- towards vehicle disallowance made by the AO. In the result, the ground of the revenue is dismissed and the ground of the assessee is allowed. - Addition made of difference in MODVAT valu .....

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ound to be in order, allow necessary relief to the assessee. Hence this ground of the revenue is dismissed. - Addition on account of valuation of closing stock - Held that:- he ld. CIT(A) has given a finding of fact that the assessee is regularly following the consistent basis for the valuation of its closing stock and there is no deviation in the valuation method during the year. Further the ld. AR has submitted that for subsequent A.Y 1997-98 the AO has accepted the closing stock declared .....

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lowance of amount paid to RSEB - Held that:- The assessee has submitted that an amount has been paid to RSEB towards drawing excess power over and above the sanction capacity. It is therefore, a matter which falls within the realm of contractual relationship between the assessee and the RSEB and it is clearly in the nature of contractual payment rather than infringement of any law of the land. In light of that, we delete the disallowance of sum paid to RSEB. - Disallowance on adhoc basis out .....

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trict the disallowance to ₹ 2,11,997/-. Given that the assessee has already disallowed ₹ 1,68,707/-, the balance disallowance of ₹ 43,290/- should be made in the hands of the assessee - Disallowance of foreign travel expenditure - Held that:- The decision of Hon’ble Bombay High Court in case of Bralco Metal Industries Pvt. Ltd.(1993 (9) TMI 318 - BOMBAY High Court ) was brought to the notice of Bench in support of the contention that the expenditure on foreign travel of Man .....

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enditure - Addition of publicity expenses - Held that:- It is not in dispute that the amount of ₹ 1 lacs has been paid to Equestrian Federation of India and other amounts have been paid to Shri Jawahar Jain education Institute and Puja Samiti and other trust to support their educational and social activities. The ld. AR has submitted its inability to submit the supporting documentation in view of the fact that the assessee has become a sick company and the matter is pretty old. Given t .....

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s part of the rehabilitation package of M/s Modi Cement which is one of the group companies. Similarly, the assessee has supported the other group companies which were also going through the financial and liquidity crunch in order to meet the statutory liabilities and dues towards salary of employees, workers and other expenses and has thus satisfied the test of commercial expediency in respect of other loan and advances as well. In light of that, we delete the disallowance of ₹ 21,96,755/ .....

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xpenses are not under question, we hereby delete the disallowance - Addition on account of loss in transit - Held that:- CIT(A) while confirming the disallowance has held that the assessee did not file any evidence and justification in support of the transit loss of ₹ 4,73,264/-. Hence we do not see any justification to interfere in the order of ld. CIT(A) hence same is confirmed and the ground taken by the assessee is dismissed. - ITA No. 382/JP/2011, ITA No. 420/JP/2011 - Dated:- 19- .....

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umstances of the case in deleting the addition/disallowance ₹ 40,76,485/- made out of stores and spare expenses. 2. That the ld. CIT(A) has erred in law as well as on the facts and circumstances of the case in deleting the disallowance of ₹ 4,40,000/- made out of legal and professional charges provisions booked for bills not received, treating the same expended for getting a benefit of enduring nature. 3. That the Id. CIT(A) has erred in law as well as on the facts and circumstances .....

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/disallowance of ₹ 3,41,550/- made in respect of guest house expenses. 6. That the Id. CIT(A) has erred in law as well as on the facts and circumstances of the case in deleting the addition of ₹ 2,35,000/- made on account of payment of club. 7. That the Id.CIT(A) has erred in law as well as on the facts and circumstances of the case in restricting the vehicle expenses to ₹ 1,20,000/- out of total disallowance of ₹ 2,00,000/-. 8. That the Id. CIT(A) has erred in law as wel .....

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record in respect of addition made of difference of ₹ 1,01,901/- in modvat value available in valuation of closing stock of raw material. 10. That the Id. CIT(A) has erred in law as well as on the facts and circumstances of the case in restricting the expenses made on account of repair of vehicle to ₹ 3,02,000/- out of total disallowance of ₹ 6,02,000/-. 11. That the Id. CIT(A) has erred in law as well as on the facts and circumstances of the case in deleting the addition of & .....

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0/- out of expenditure on employees welfare and canteen expenses are of entertainment in nature. 3. The Ld. Commissioner of Income tax (Appeals) has erred in fact and in law in confirming the disallowance of ₹ 19,00,000/- on adhoc basis out of repairs and maintenance expenses by considering the same as incurred on repairs of the guest house building. 4. The Ld. Commissioner of Income tax (Appeals) has erred in fact and in law in confirming disallowance of ₹ 12,38,418/- out of foreign .....

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sioner of Income tax (Appeals) has erred in fact and in law in confirming disallowance of ₹ 21,96,755/- out of the interest payment. 9. The Ld. Commissioner of Income tax (Appeals) has erred in fact and in law in confirming disallowance of ₹ 3,45,600/- out of interest expenses. 10. The Ld. Commissioner of Income tax (Appeals) has erred in fact and in law in confirming addition of ₹ 82,67,790/- u/s 40A(3). He has further erred in not considering the applicability of Rule 6DD(j) .....

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n sale of liquid chlorine. 14. The Ld. Commissioner of Income tax (Appeals) has erred in fact and in law in confirming disallowance of ₹ 3,02,000/- out of expenses on repairs of motor car. 15. The Ld. Commissioner of Income tax (Appeals) has erred in fact and in law in confirming addition of ₹ 4,73,264/- on account of loss in transit. 2. The brief facts of the case are that the assessee company is engaged in the manufacture of liquid chlorine & caustic soda flakes. It filed the r .....

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the Hon ble ITAT. The Hon ble ITAT vide order dated 19.09.2008, restored the matter to the file of the CIT(A) to decide the issues denovo by providing adequate opportunity of hearing to both the parties. In pursuance of the direction of Hon ble ITAT, notice of hearing was given to the assessee as well as the AO. The various grounds which were set aside were decided & disposed off by the Ld. CIT(A) vide order dated 04.03.2011. Against the order of CIT(A), both the assessee & the departmen .....

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A.Y. 98-99, insurance claim of ₹ 32,76,485/- was received & the scrap value of old turbo charger was booked as miscellaneous income & therefore the expenditure claimed on turbo charger is allowable as revenue expenditure. The AO observed that expenditure incurred is on current repair but the same should be allowed to the extent of procurement of new spare part minus insurance receivable minus amount receivable on sale of old part. Accordingly, after estimating the sale of old spare .....

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insurance claim of ₹ 32,76,485/- and realization from the sale of scrap of damaged turbo charger on receipt basis in F.Y. 97-98 relevant to A.Y. 98-99. Therefore, this addition is not justified. Accordingly, the addition made at ₹ 40,76,485/- is deleted. 5. Now the revenue is in appeal before us. The ld CIT DR has vehemently supported the order of the lower authorities. 6. At the outset, the ld AR of the assessee has submitted that there is no dispute as to the fact that the expendit .....

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cost towards accessories are accounted for on cash basis due to uncertainty of realization. This is specifically mentioned in Schedule P Para A(1) of the significant accounting policies & notes to accounts. In these circumstances, the deduction of insurance claim and the sale realization from damaged turbo charges from the cost of new turbo charges is not justified. The findings of CIT(A) be therefore upheld by dismissing the ground of the department. 7. We have heard the rival contentions o .....

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ered to tax in the subsequent assessment year 1998-99. Hence we do not see that there is any loss which has been caused to the Revenue by not offering the said receipts in the year under consideration. It is not the case of the Revenue that any tax rates have changed in the subsequent year. In light of above, we do not see any justification in interfering with the order of ld. CIT(A). Hence we confirm the findings of the ld. CIT(A) and dismissed the ground of the Revenue. 8. The 2nd ground of th .....

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hnological membrane cell plant. The AO observed that the expenditure incurred was to get a benefit of enduring nature, the copy of report obtained was not filed, invoice issued by the party is dated 26.07.1995 whereas the order is dated 25.12.1995. He accordingly, disallowed the expenditure of ₹ 4,40,000/-. 9. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld CIT(A), who had deleted the disallowance by holding that the expenditure was incu .....

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itted that the assessee is engaged in the business of manufacturing of liquid chlorine & caustic soda flakes. It is already producing & manufacturing the goods. Any study undertaken for converting the existing plant into a better technological plant in an existing business is a revenue expenditure & not a capital expenditure. It may be noted that though the payment is made to the consultant towards the environmental study for conversion of existing plant, such consultancy, does not a .....

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) (HC) (iii) ACIT Vs. J.P. Morgan India (P.) Ltd. (2011) 46 SOT 250 (Mum.) (Trib.) He further submitted that so far as the AO s observation that order is dated 25.12.1995 but invoice issued by the party is dated 26.07.1995, the same appears to be some typographical mistake. This was neither pointed out to the assessee in the course of assessment proceedings nor any enquiry was made from the concerned party about such discrepancy. Hence, for this reason the expenditure without proving that the sa .....

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nothing on record to confirm that the assessee has actually converted the existing plant into the new plant and whereby the said cost should go and be added to the cost of the new plant. The expenditure therefore is clearly in connection with conducting a study to make the plant technological better plant. In our view, the said expenditure towards carrying out only the consultancy study cannot be characterized as a capital expenditure. Further the decision of Punjab & Haryana High court in c .....

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evolent fund was constituted for the welfare of employees & contribution was being made by the employees & the assessee. The assessee created a liability of ₹ 90,400/- towards its contribution to this fund. The AO disallowed the assessee s claim for the reason that the sum is not deposited in the bank and it will be allowed in the year in which the same is deposited in the bank. 14. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld .....

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om past events, the settlement of which is expected to result in an out flow from the enterprise of resources. In mercantile system of accounting, once there is an obligation on the assessee for contribution to the benevolent fund, there is no law under the Income Tax Act that the same would be allowed only when it is paid/ deposited in the bank in the name of the fund except where section 43B applies. The AO has not disputed the liability. Hence, the same cannot be disallowed only because it is .....

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that the said contribution has been deposited before due date of filing the return of income, hence in light of the provisions of section 43B of the Act the said contribution has been rightly allowed by the CIT(A). Hence we confirm the order of the ld. CIT(A) and we dismiss this ground of Revenue s appeal. 18. The 4th ground of the revenue and 2nd ground of the assessee s appeal are against restricting the disallowance on account of entertainment expenses to ₹ 37,500/- out of total disall .....

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entertainment expenditure. He further observed that expenditure of ₹ 2,19,682/- under the head repair & maintenance expenses on boarding & lodging of engineers is also in the nature of entertainment. Accordingly, he made disallowance of ₹ 1,47,341/- being 50% of ₹ 75,000 and ₹ 2,19,682/- u/s 37(2A) of the Act. 19. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld CIT(A), who had deleted the disallowance of ₹ .....

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upported the order of the lower authorities. 21. At the outset, the ld AR of the assessee has submitted that the term "entertainment", in the context of the IT Act, on its true construction and meaning, would include the acts or practice of receiving and entertaining strangers and friends in a friendly, generous and liberal way. These acts may consist of providing, inter alia, a formal or elegant meal, a banquet and being hospitable in providing for the wants of a guest in a liberal an .....

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arly, if the acts or practice of being hospitable in the sense of providing meals, drinks or satisfying any other wants of guests, whether they are friends, strangers or customers, as a part and parcel of express or implied terms and conditions of business, trade or profession, or on account of longstanding custom in such trade, business or profession, they would not amount to acts of entertainment. Hospitality shown on account of obligation of business arising as a result of an express or impli .....

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has therefore rightly deleted the disallowance of ₹ 1,09,841/- and the ground of the department be dismissed. He further submitted that so far as disallowance of ₹ 37,500/- made by the AO and confirmed by the CIT(A) by assuming that an amount of ₹ 75,000/- out of expenditure on employees welfare and canteen expenses are of entertainment in nature is concerned, it is to be noted that part of the canteen expenses which is meant for the employees where occasionally the visitors al .....

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rties and perused the material available on the record. The amount of ₹ 2,19,682/- has been incurred on boarding and lodging of Engineers who have been called upon to carry out repair of faults in the appellant s plant. Further ₹ 75,000/- has been estimated by the AO towards entertainment expenditure which has been incurred on expenses of tea, coffee, cold drinks etc. for the visitors who have visited the office and factory premises of the assessee. In our view these are routine busi .....

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dismissed and the ground of the assessee is allowed. 23. The 5th ground of the revenue s appeal is against deleting the addition/disallowance of ₹ 3,41,550/- made in respect of guest house expenses. The AO from the perusal of details of miscellaneous expenses filed by the assessee observed that a sum of ₹ 10,61,482/- has been shown as guest house expenses for Delhi office. However, as per the tax audit report, only ₹ 7,19,965/- has been considered for disallowance. In the abse .....

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utset, the ld AR of the assessee has submitted that it may be noted that once the auditor after verification has found the guest house expenses out of miscellaneous expenses at ₹ 7,19,965/-, the same cannot be taken at ₹ 10,61,480/- on the basis of the broad details filed by the assessee. The CIT(A) has therefore rightly deleted the disallowance and the ground of the department be dismissed. 24. We have heard the rival contentions of both the parties and perused the material availabl .....

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r of the ld. CIT(A) and the ground of the revenue is dismissed. 25. The 6th ground of the revenue s appeal is against deleting the addition of ₹ 2,35,000/- made on account of payment to clubs. The AO observed that the assessee has made payments for the club membership of its Chairman, MD & Senior Executives. Accordingly, by holding that the club payments are not exclusively for the purpose of business, he made disallowance of ₹ 2,35,000/-. The Ld. CIT(A) deleted the disallowance .....

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(P&H)(HC)(FB) (ii) CIT vs. Infosys Technologies Ltd. (2012) 349 ITR 606 (Kar.)(HC) (iii) CIT vs. Modi Xerox Ltd. (2012) 344 ITR 411 (All.) (HC) (iv) CIT Vs. Samtel Colour Ltd. (2010) 326 ITR 425 (Del.) (HC) In view of above, CIT(A) has rightly deleted the disallowance and the ground of the department be dismissed. 26. We have heard the rival contentions of both the parties and perused the material available on the record. The Hon ble Punjab & Haryana High Court in the case of CIT Vs. Gro .....

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f the revenue s appeal and 7th ground of the assessee s appeal are against restricting the vehicle expenses to ₹ 1,20,000/- out of total disallowance of ₹ 2,00,000/- and confirming disallowance of ₹ 1,20,000/- out of the vehicle expenses. The ld AO observed that assessee has claimed expenses on vehicle which are not owned by it. The vehicles are used for personal purpose by the directors. Accordingly, he made lump sum disallowance of ₹ 2 lacs. The Ld. CIT(A) observed that .....

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he assessee has submitted that for allowance of vehicle expenses it is not necessary that vehicle should be owned by the assessee. Even if vehicles are owned by the employee s expenditure on their vehicle is allowable u/s 37(1) when incurred for the purpose of the business. In case of a Public Ltd. Company no disallowance for personal use of directors can be made as held in the following cases:- (i) Surya Credits Ltd. vs DCIT 22 Tax World 90 (Jaipur Bench): (ii) Dy. CIT vs Gujarat Filaments Ltd. .....

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efore, the disallowance confirmed by CIT(A) be deleted. Without prejudice, it may be pointed out that the CIT(A) in the first round has only confirmed the disallowance of ₹ 1,00,000/-. Therefore, disallowance of ₹ 1,20,000/- confirmed by CIT(A) is otherwise not justified. In view of above, the disallowance confirmed by CIT(A) be deleted by dismissing the ground of the department. 28. We have heard the rival contentions of both the parties and perused the material available on the rec .....

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t expenditure has been incurred for the personal purposes. Secondly, the liability for ₹ 1,20,000/- has crystallized during the year and following the mercantile system of accounting, the same cannot be disallowed. In the result, we delete the disallowance ₹ 1,20,000/- towards vehicle disallowance made by the AO. In the result, the ground of the revenue is dismissed and the ground of the assessee is allowed. 29. The 8th ground of the revenue s appeal and ground No. 13 of the assessee .....

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the consequent order passed by Commissioner of Central Excise dated 8.12.1998 held that assessee collected cash from Customers of liquid chloride over and above the invoice value for which a demand of duty amounting to ₹ 1,45,61,754/- has been raised by the Excise department for the period April 1995 to August 1996. The difference of duty for the period April 1995 to March 1996 was worked out at ₹ 1,06,64,946/-. The excise duty being 20% of the value of goods, he held that assessee .....

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.e. before due date of filing of return. Hence the amount of ₹ 60 Lacs needs to be allowed u/s 43B. 30. The Ld. CIT(A) directed the AO to verify from the Excise Department exact position of appeal and collect the appeal order. It further directed the AO to verify the claim of payment of ₹ 60 lacs on account of excise duty before the due date of return. 31. Now both are in appeal before us. The ld CIT DR has supported the order of the lower authorities and the ld AR of the assessee ha .....

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ider the addition as per law as an when the appeal under the Excise law is finally decided. As far as allowability of excise duty of ₹ 60 lacs deposited by assessee before due date of filing of return u/s 43B is concerned, there is no error in the direction given by CIT(A) and therefore his order be upheld on this issue. In view of above, the addition confirmed by CIT(A) be deleted. 32. We have heard the rival contentions of both the parties and perused the material available on the record .....

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of CESTAT. Further we do not see any infirmity in the order of the ld. CIT(A) to allow the claim of the assessee towards payments of excise duty of ₹ 60 lacs, claimed to be paid before the due date of filing of return of income, subject to due verification by the AO. 33. The 9th ground of the revenue s appeal is against directing to allow the claim of the assessee after verifying the amount from the record in respect of addition made of difference of ₹ 1,01,901/- in MODVAT value ava .....

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he ld CIT(A) directed the AO to verify the contention of assessee that excise duty is paid before due date of filing of return and that his predecessor CIT(A) has only confirmed the addition of ₹ 66,246/- (364438-298099) on this account and accordingly allow the claim of assessee. The CIT DR has supported the order of the lower authorities. The ld AR of the assessee has submitted that Section 145A which requires that tax is to be considered in valuation of stock has come into force from AY .....

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mate the amount of excise duty on raw material at ₹ 4 lacs as against actual amount of ₹ 3,64,438/-. The difference between excise duty and MODVAT credit is only ₹ 66,249/- which was confirmed by the predecessor CIT(A) against which no appeal is filed by the department to the tribunal. Thus, the addition made by the AO is otherwise incorrect. In view of above the entire addition made by AO needs to be deleted by dismissing the ground of the department. 34. We have heard the riv .....

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the same is found to be in order, allow necessary relief to the assessee. Hence this ground of the revenue is dismissed. 35. Ground No. 10 of the revenue s appeal and ground No. 14 of the assessee s appeal are against restricting the expenses made on account of repair of vehicle to ₹ 3,02,000/- out of total disallowance of ₹ 6,02,000/- and confirming disallowance of ₹ 3,02,000/- out of expenses on repairs of motor car. The ld Assessing Officer observed that during the year asse .....

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Ld. CIT(A) deleted the disallowance of ₹ 3 lacs holding that personal purposes addition cannot be made in the hands of the company but can be considered as perquisites in the hands of the directors. However, he confirmed the disallowance of ₹ 3.02 lacs due to non furnishing of the details. The CIT DR has supported the order of the lower authorities. The ld AR of the assessee has submitted that no lump sum disallowance of ₹ 3 lacs out of vehicle repair expenses on account of be .....

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diture is incurred in normal course of business. Hence, the disallowance of ₹ 3.02 lacs confirmed by CIT(A) is uncalled for and directed to be deleted. 36. We have heard the rival contentions of both the parties and perused the material available on the record. As we have held earlier while disposing off ground No.7 in respect of vehicle running expenses, applying the same analogy, the disallowance of ₹ 3,00,000/- out of vehicle repair expenses is hereby deleted. Further the AO obser .....

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eby delete the disallowance of ₹ 3,02,000/-. In the result the revenue s appeal is dismissed and the assessee s appeal is allowed. 37. The ground No. 11 of the revenue s appeal is against deleting the addition of ₹ 10 lacs on account of valuation of closing stock. The AO observed that closing stock has not been valued properly. He therefore made a lump sum addition of ₹ 10 lacs after revoking section 145(2). The Ld. CIT(A) deleted the disallowance by holding that the assessee i .....

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IT Vs. Subhash Chand Agarwal 58 SOT 122 has held that when Assessing Officer failed to point out any defect in method of accounting or any inherent defect in books of account maintained by assessee, invoking section 145 for rejecting books of account is unsustainable. Without prejudice to above, it is to submit that that closing stock of one year becomes the opening stock of the next year. The AO simply increased the value of the closing stock of this year by ₹ 10 lakhs without directing t .....

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. s, the Revenue accepted the order of the Tribunal in favour of the assessee and did not pursue the matter any further but in respect of some A.Y. s, the matter was taken in appeal before the High Court but without any success, the Revenue cannot be allowed to flip-flop on the issue and it ought let the matter rest rather than spend the taxpayers money in pursuing litigation for the sake of it. It further held that when the rate of tax remained the same in present A.Y. as well as in subsequent .....

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ervaluation of closing stock of the land but the closing stock of land shown by the assessee is accepted by AO as opening stock for the subsequent year in the assessment made u/s 143(3) for the subsequent year deleted the addition made by the AO as no loss to the revenue has been caused. In the present case also for subsequent AY 1997-98 AO has accepted the closing stock declared by the assessee as opening stock and also accepted the closing stock declared in that year. Therefore, also the addit .....

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.Y 1997-98 the AO has accepted the closing stock declared by the assessee for the year under consideration as opening stock for that year and also accepted the closing stock declared in that year. Further it is noted that there is no change in the rate of tax for the year under consideration and the subsequent assessment year, hence following the decision of Hon ble Supreme Court in the case of Excel Industries Ltd. (supra) and decision of Hon ble Punjab & Haryana High Court Satish Estate Pv .....

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erefore disallowed the same holding that the expenditure is in the nature of penalty. Before CIT(A), assessee explained that the amount paid to RSEB is not an expenditure incurred for any purpose which is an offence or which is prohibited by law. The amount so paid to RSEB is only a compensatory payment which the assessee has to pay as per contractual obligation since it was towards drawing the power more than the sanctioned capacity. It is not towards infringement of any law. The Ld. CIT(A) con .....

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to show that the amount so paid is on account of violation of law. Merely because the assessee has debited the amount as penalty , cannot be the basis to conclude that amount paid to RSEB is on account of infringement of any law. CIT(A) has ignored the fact that the AO has made the disallowance only because it is debited in the P&L A/c under the head penalty but has not referred to any particular section of any particular Act under which this amount is paid so as to construed it as penalty f .....

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T(A) be directed to be deleted. The ld CIT DR has supported the order of the lower authorities. 40. We have heard the rival contentions of both the parties and perused the material available on record. The assessee has submitted that an amount of ₹ 3,01,883/- has been paid to RSEB towards drawing excess power over and above the sanction capacity. It is therefore, a matter which falls within the realm of contractual relationship between the assessee and the RSEB and it is clearly in the nat .....

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e at Delhi. The total expenditure on guest house including repair & maintenance expenses of ₹ 15,66,484/-. The same has been disallowed u/s 37(4) in the computation of total income. The ld AO on verification of details of Delhi office observed that building repair & maintenance expenses includes expenditure incurred on guest house at 15 Friends Colony, New Delhi. He estimated such expenses at ₹ 19 lacs considering that in A.Y. 95-96, such expenses estimated at ₹ 17 lacs .....

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f furniture repair, building repair, miscellaneous expenses & maintenance expenses has pointed out three vouchers in respect of building repair (without amount) & 3 vouchers of maintenance expenses for AC amounting to ₹ 1,34,080/- which pertains to FC-15 Friends Colony, Delhi. The assessee has also its head office at 15 Friends Colony, Delhi. The expenditure pointed out by the AO is less than the repair & maintenance expenses disallowed by the assessee at ₹ 1,68,707/-. On .....

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rties and perused the material available on the record. On perusal of the records, it is noted that the AO has highlighted specific expenses amounting to ₹ 2,11,997/- incurred towards repair and maintenance of the guest house at 15 Friends colony, New Delhi. It is also noted that the assessee has already disallowed an amount of ₹ 1,68,707/- u/s 37(4) while filing its return of income. In light of that, we do not see any justification in AO making an estimation and disallowance at  .....

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ign travelling expenses of ₹ 23,23,444/- in respect of following visits. The CIT(A) confirmed the disallowance by upholding the findings of the AO. Name of Person Place Amount Purpose Reasons for disallowance by AO Sh. DK Modi Sweden 2,03,781/- Discussion with foreign collaborator for DG Set Power is major raw material & installation of DG set is very much desired hence expenditure for acquiring capital asset is capital expenditure Sh. Ashok Kumar Sweden, France & Switzerland 1,61, .....

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A, Switzerland & Dubai 1,92,954/- Business & Export promotion 50% disallowed for want of necessary details regarding allowability of expenditure as per rule 6D Sh. Ashok Kumar Japan 1,60,762/- To attend design conference for expansion of existing Membrance Plant Since visit was for acquiring capital asset, hence expenditure is treated as capital CB Garg Japan 1,08,173/-Do-Do- LN Bansal Sweden, France & Switzerland 92,634 Exploring possibility of purchasing second hand DG Set & Ex .....

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Industries Pvt. Ltd. Vs. CIT 206 ITR 477 has held that expenditure on foreign tour of managing director to examine the suitability of machinery for a running business is not capital in nature where no machinery was purchased. In the present case also no new capital asset has been purchased. The AO has also not pointed out that any particular visit is correlated with purchase of any specific asset. Thus, the disallowance made by lower authorities is uncalled for. Further discussion for raising o .....

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the case. In respect of the visit of Dr. KN Modi dt. 25.09.95 for ₹ 2,10,415/-, the same is along with Dr. DK Modi in which expenditure of ₹ 2,03,781/- as stated above was incurred. In view of above, the disallowance confirmed by CIT(A) out of Foreign Traveling Expenses be directed to be deleted. The ld CIT DR has supported the order of the lower authorities. 44. We have heard the rival contentions of both the parties and perused the material available on the record. On perusal of th .....

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avel was undertaken in connection with acquisition of capital assets besides other reasons such as attending conference etc. At the same time the ld. AR submitted that no new capital assets has been purchased or acquired by the assessee. The decision of Hon ble Bombay High Court in case of Bralco Metal Industries Pvt. Ltd.(supra) was brought to the notice of Bench in support of the contention that the expenditure on foreign travel of Managing Director to examine the suitability of machinery for .....

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ainst confirming disallowance of ₹ 1,04,108/- out of legal charges. The AO noted that out of the provision for legal expenses made during the year, ₹ 1,04,108/- has been paid in June 1996 to National Quality assurance Ltd. on the basis of invoice dt. 29.02.96 which is towards the cost of registration including surveyance visit for the year 31.03.1997. The AO considered this claim as related to A.Y. 97-98 & accordingly made the disallowance. The Ld. CIT(A) confirmed the disallowan .....

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able expenditure as per AS 29. Simply because it is for the year 31.03.97 would not make it expenditure relevant to A.Y. 97-98. It can be noted that even the provision for audit fees is allowed in a particular year even though the services are rendered in the subsequent year. In next year the AO has not allowed this expenditure and therefore if it is not allowed in the year under consideration it would never be allowed. Supreme Court in case of CIT Vs. Excel Industries Ltd. 93 DTR 457 has held t .....

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upported the order of the lower authorities. 46. We have heard the rival contentions of both the parties and perused the material available on the record. It is not in dispute that the assessee has incurred an amount of ₹ 1,04,108/- towards the cost of registration including the surveyance visit paid to National Quality assurance Ltd. Given that there is no change in the rate of tax for the year under consideration and the subsequent year, there is no loss which is caused to the revenue by .....

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aid to Equestrian Federation of India for sponsorship is not filed. Further, payment of ₹ 21,000/- to Sh. Jawahar Jain Education Institute is towards donation & contribution to certain welfare Association, Education Society, Puja Samiti & Trust for ₹ 38,200/- as listed on Page 17-18 of the order are also in the nature of donation. Accordingly, he made disallowance of ₹ 2 lacs. The Ld. CIT(A) confirmed the disallowance holding that assessee himself admitted that he had n .....

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onsorship is not doubted by the lower authorities. Hence, the same cannot be disallowed. The other payment mentioned in the assessment order is for advertisement in the souvenir. These are normal socio welfare expenditure required to be incurred to maintain good & cordial relationship. Only because the assessee could not produced the evidence of expenses that too after a lapse of 15 years particularly when the assessee has become a sick company and there was labour unrest, the expenditure ca .....

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contentions of both the parties and perused the material available on the record. It is not in dispute that the amount of ₹ 1 lacs has been paid to Equestrian Federation of India and other amounts have been paid to Shri Jawahar Jain education Institute and Puja Samiti and other trust to support their educational and social activities. The ld. AR has submitted its inability to submit the supporting documentation in view of the fact that the assessee has become a sick company and the matter .....

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ged from others @18% to 26.5%. It is further observed that inter corporate deposits has been raised & the same is invested in Fixed Deposits for obtaining Bank guarantee for group Concern. Accordingly, he made disallowance of interest of ₹ 21,96,755/- as under:- Name of the Company Amount (in lacs) Date Differential Interest Disallowable Amount M/s Annapurna Cement Ltd. 12.58 17.04.95 18% 2,17,005/- M/s Transitional Travel Ltd. 11.50 29.04.95 6% (18-12) 63,250/- Transitional Securities .....

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interest @ 18% from above concern instead of Nil Rate or 12% or 15% charged from them. He has therefore calculated the notional income & made disallowance of interest. There is no basis for the same. It is not the case of the AO that assessee has borrowed the funds at a higher rate & then given the same at a lower rate. Infact AO himself has stated that assessee has raised inter corporate deposit @ 8.5% & made investment in FDR yielding a rate of 9%. If in some cases assessee has cha .....

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connection is placed on the following cases:- (i) SA Builders 289 ITR 1 (SC) (ii) CIT Vs. Bharati Televenture Ltd. 51 DTR 98 (Del) (2011) (iii) CIT Vs. Motor Sales Ltd 304 ITR 123 (All). (iv) JCIT V/s ITC Ltd. (2008) 299 ITR 341 (Kolkata) (SB) (v) CIT Vs. Radiko Khaitan Ltd. 274 ITR 354 (All) The CIT(A) has wrongly observed that in AY 1995-96, Hon ble ITAT has confirmed the similar disallowance in as much as no such issue was before the Hon ble ITAT in that AY as evident from the copy of the ITA .....

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es last year and credit of interest has increased to 0.014 crores. As per the AO, the increase in interest liability is on account of advances given at concessional rate of interest or utilizing the funds for taking the FDR for revival of Modi Cement Ltd. This is evident from the facts that total of secured and unsecured loans during the year are ₹ 72.01 crores as against ₹ 63.79 crores last year. As against this, the assessee claimed that this amount has been advanced from the share .....

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he same findings could not been controverted by the assessee. Further, the ld. AO has submitted that the assessee had advanced funds as a measure of commercial expediency to the group companies. In this regard the assessee has submitted before the Assessing officer that it gave advances to the companies mentioned in letter No. 961 temporarily as a financial support in order to meet the statutory liabilities and dues towards salary of employees, workers and other expenses to these companies with .....

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the bank as FD and such arrangement was made as rehabilitation package of M/s Modi Cement. A further sum of ₹ 5 crores pledged with the bank in a non-lien fixed deposit a/c, out of the funds raised from the promoters. It was further noted that the inspection team of the companies department required assessee company as to why such funds to the extent of ₹ 10 crores are blocked to rehabilitate to M/s Modi Cement Ltd. It was submitted that Modi Cement Ltd. is group company and on accou .....

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manifest that the advance to M/s Hero Fibres limited became imperative as a business expediency in view of the undertaking given to the financial institutions by the assesee to the effect that it would provide additional margin to M/s Hero Fibres Limited to meet the working capital for meeting any cash loses. In light of decision of Hon ble Supreme court in case of Hero cycles, the bank guarantee for ₹ 5 crores in favour of IDBI by depositing ₹ 5 crores with the bank as FD became imp .....

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disallowance of ₹ 21,96,755/-. In the result, ground of the assessee is allowed. 51. The 9th ground of the assessee s appeal is against confirming disallowance of ₹ 3,45,600/- out of interest expenses. The AO disallowed the interest expenditure on the ground that borrowed fund has been given for non-business purpose based on his findings in AY 1995-96. The CIT(A) confirmed the disallowance by giving the following findings:- I have perused the assessment order as well as submission of .....

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e in appeal before the CIT(A). The facts are similar. Therefore, the action of the AO is justified. The ld AR of the assessee has submitted that the disallowance confirmed by CIT(A) is uncalled for as the advance was given to the group concerns in view of the commercial expediency and therefore interest is allowable expenditure in view of the decision of Supreme Court in case of S.A Builders case (referred supra). In AY 1995-96, this decision was not available and therefore the decision of AO fo .....

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and Research Centre and Medical Science and to Modi ARE Limited. In light of same, we are unable to accede to the contentions of the assessee and confirm the order of ld CIT(A). Hence, ground no. 9 of the assessee is dismissed. 53. The 10th ground of the assessee s appeal is against confirming addition of ₹ 82,67,790 u/s 40A(3). He has further erred in not considering the applicability of Rule 6DD(j) as was existing till 25.07.1995. The assessee has made payment of freight & cartage e .....

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rossed cheque or would have caused genuine difficulty to payee having regard to the nature of transaction and the necessity for expeditious settlement thereof. In case of freight & cartage expenses payment is required to be made by drivers on spot and it is not practicable to make payment by crossed cheque. The said Rule 6DD(j) was substituted w.e.f 25/07/1995 and simultaneously the limit was increased to ₹ 20,000/- by Finance Act (No. 2) 1996 w.e.f 01/04/1997. Therefore, effectively R .....

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Rule 6DD(j) and therefore disallowance of ₹ 82,67,790/- made by the AO be deleted. Without prejudice to above, expenditure incurred upto 25.07.95 is ₹ 2,77,99,801/- as mentioned in TAR on which no disallowance u/s 40(A)(3) is justified in view of Rule 6DD(j). Otherwise also where the person to whom payment is made is genuine and cash is paid in exceptional circumstances in business expediency, the same cannot be disallowed u/s 40A(3). For this reliance is placed on the following cas .....

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plicability of section 40A(3) wherein it was provided where it was not practical to make payment by crossed cheque or would have caused genuine difficulty to payee having regard to the nature of transaction and the necessity for expeditious settlement thereof. The ld. CIT(A) has however applied the amended rule 6DD(j) while confirming the disallowance which states that where payments was required to be made on a date on which the banks were closed either on account of holiday or strike. It is th .....

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because such persons are not having banking facility around the factory area. In our view, the same proves genuineness of the transactions, the identity of the payee as well as the business expediency to make payment in cash in the backward area where the payee are not having the banking facility. Further looking at the intent of introduction of section 40A(3) which was to curb and reduce the possibilities of black money circulation in economy and taking into consideration the decision of Hon bl .....

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ance of ₹ 1,50,000/- out of telephone expenses. The AO observed that it is not possible to extract the information of expenses incurred on the residential phones of Chairman and MD. Considering that an amount of ₹ 1,91,953/- is already considered for disallowance under the head guest house against which ₹ 4 lacs was disallowed in the preceding year, a further disallowance of ₹ 1.50 lacs was made. The ld. CIT(A) confirmed the disallowance by giving the following findings:- .....

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no disallowance for personal use can be made in case of a company. In respect of telephone at guest house already a disallowance of ₹ 1,91,953/- has been made. In these circumstances further disallowance of ₹ 1.50 lacs is unjustified and the same be deleted. The lower authorities have made the disallowance merely on the basis of the past history of the case which is not justified more particularly when the disallowance has already been made. Without prejudice to above, it may be poin .....

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he records it is noted that the AO, relying on the preceding assessment year wherein the disallowance of ₹ 4 lacs was made in respect of telephone expenses on the guest house, has disallowed a sum of ₹ 1.5 lacs for the year under consideration. Given that the said disallowance is purely on estimate basis and also given the fact that the assessee has already disallowed an amount of ₹ 1,91,953/-, the adhoc disallowance of ₹ 1.5 lacs is hereby deleted. 57. The 12th ground of .....

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AR of the assessee has submitted that it is to submit that in some cases the claim of the expenditure is not made by the concerned parties or bills are not submitted timely. In such cases expenditure is booked when bills are submitted in past performance. The expenditure includes ₹ 1,70,961/- on account of salary & wages where liabilities have crystallized during the year on sanction of the payment. Further the rate of tax being same, it does not matter whether it is allowed as deducti .....

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t Year 1978-79) dated 28/09/1984 He further submitted that without prejudice to above, in case these prior period expenditures are not allowed in the year under consideration, then the same be directed to be allowed in the AY 1995-96 to which it pertains. Further the assessee has also included in income ₹ 11,86,483/- on account of excess provision written off/ liabilities no longer required. This is more than the claim of prior period expenditure. In view of above, the disallowance confirm .....

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