TMI Blog2015 (10) TMI 2567X X X X Extracts X X X X X X X X Extracts X X X X ..... - Held that:- As carefully examining the provision of Rule 6DD(e) of the Rules in which the payments for purchase of produces of animal husbandry ( including livestock, hides and skins) or doing or poultry forming are excluded from the clutches of payment in cash exceeding the specified limit. Therefore, we are of the view that since the payments were made for purchase of raw hides to the producer through the commission agent provision of Rule 40A(3) cannot be invoked as its falls within the exemption clause of Rules 6DD(e) of the Rule. 12. We, therefore, do not find any justification in the addition of ₹ 22,10,155/- made on account of purchases in cash by invoking in provision of Rule 40A(3) of the Act so far as the addition deleted by the CIT(A) are concerned, we find that the CIT(A) has mentioned in his order that the payments were made in cash on Sunday therefore, the same stands excluded as per Rule 6DD(j) of the Rule. We therefore, find no infirmity in the order of the CIT(A) deleting the addition Sales effected to sister concern - difference in price - Held that:- In the light of the detailed explanation and was of the view whatever little difference in prices are t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. Whenever jurisdiction is transferred from one Officer to other Officer the subsequent officer shall continue with the proceeding from the stage left by the earlier officer. There is no requirement of law to issue a notice u/s 143(2) every time by the new Officer, we therefore, find no merit in the contention of the assessee and we accordingly reject the same. Disallowance made u/s 40(a)(ia) - Held that:- We restore the issue to the file of the AO with a direction to verify the facts and if the recipient has paid the taxes on this receipt no disallowance be made in the hands of the assessee in this regard. Disallowance of pre paid expenses - Held that:- The assessee has credited the pre paid expenses account and debited it to the Freight and Cartage inward account. We, therefore, find no infirmity in the accounting system. Since there is no loss to Revenue, we find no merit in the disallowance Addition of bad debts - Held that:- It is not clear from the orders of lower authorities that requisite conditions of Section 36(2) are fulfilled are not for claiming a bad debts. Therefore, we set aside the order of the CIT(A) and restore the matter to the file of the AO wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e onus for proving which requirement lay on the assessee and was not discharged. 5. That the Ld. CIT(A) has erred in law a.id facts in failing to appreciate that casn payments made to Shah Traders could not be substantiated by the assessee in remand proceedings directed by the CIT(A) himself and this being the case the entire payments to Shah Traders were required to be disallowed and no part of such payment could be brought within Rule 6DD(j) merely because assessee stated that payments were made on bank holidays. 6. That the Ld. C1T(A) has erred in law and in facts in deleting addition of ₹ 49,09,357/- made on account of sales at other than market rates to sister concerns without appreciating that the AO had adopted the most reasonable method to workout the figure of such sales. 7. That the Ld. CIT(A) has erred in law arid in facts in deleting the addition of Rs, 49,09,357/- without appreciating the fact that the addition was made on account of disallowance of sales to related party below market rates on the basis of the report of the Special Auditors. 8. The order of the CIT(A) is erroneous as reasoning adopted by him for deleting the addition of &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee to produce such bills but the assessee could not produce the same and for want of corroborating evidence, the AO disallowed the expenditure of ₹ 58,343/-, against which an appeal was filed before the CIT(A) with the submission that the assessee has voluntarily showed a debit balance of ₹ 58,343/-, which were carried forward from earlier years and is not recoverable. The amount being bad debts was required to be written off but inadvertently, the dealing clerk debited the amount to hide account to clear the debit balance instead of written off as bad debts. It was also contended by the CIT(A) that this position was explained to Assessing Officer but did not appreciate the same. The CIT(A) reexamined the claim of the assessee and having verified the fact that the excess payment of ₹ 58,343/- could not be recovered for earlier years or in the year under consideration, therefore, the same would be termed as trading loss. The mistake was made by the Clerk by debiting the same to hide purchase account instead of trading loss. The CIT(A) reexamined the claim of the assessee and having found the truth therein. The CIT(A) accepted the claim and deleted the addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to above. The copies of the accounts of parties were filed before the CIT(A) with the submission that most of the purchases were made on Sunday and due to the bank closing day the payments were made in cash. The detailed written submission was also filed before the CIT(A). 10. The CIT(A) has examined the detailed submissions and has deleted the addition with respect to payment of ₹ 1.00 lakh made to IBBAN Trading Co. The CIT(A) has held that since this payments were made to IBBAN Trading Co. on Sunday being a Bank holiday, it would not be covered by the provision of Section 40A(3) of the Act as a same is excluded as per Rule 6DD(j). With regard to payment of ₹ 1,57,650/- made to Unique Trader, no evidence was brought forward before the CIT(A) and in the absence of the same the addition of ₹ 1,57,650/- was confirmed by the CIT(A). So far as the transaction of Shah Traders are concerned, the AO has added a sum of ₹ 34,35,285/- being cash payment of purchase of raw hide. In this regard, the CIT(A) has noted that the payment of ₹ 12,25,130/- were made on different dates on Sunday and being a bank holiday a provision of Section 40A(3) cannot be invoked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re made for purchase of raw hides to the producer through the commission agent provision of Rule 40A(3) cannot be invoked as its falls within the exemption clause of Rules 6DD(e) of the Rule. 12. We, therefore, do not find any justification in the addition of ₹ 22,10,155/- made on account of purchases in cash by invoking in provision of Rule 40A(3) of the Act so far as the addition deleted by the CIT(A) are concerned, we find that the CIT(A) has mentioned in his order that the payments were made in cash on Sunday therefore, the same stands excluded as per Rule 6DD(j) of the Rule. We therefore, find no infirmity in the order of the CIT(A) deleting the addition of Rs.Rs.1,57,650/-. Accordingly, this issue is disposed of. 13. Apropos Grounds no. 6,7, and 8, it is noticed that the AO has taken a cognizance of the special auditor report and noted that the assessee sold Chrome Dressed Buff Leather to Treadestone Ltd. and V.T. Dressed Leather to other concern. On verification it was found that similar leather was sold by the assessee to other outsider concern. On further verification, it was found that the rates of sales nearest to sale treadstone Ltd. are that of Kundan Leather ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at an average rate of ₹ 7.35 dcm2. Popular Trading Corporation Qty sold dcm2 17720 at an average rate of ₹ 6.15 dcm2. As against the above, the Company has sold 1st quality of chrome leather to Treadstone Ltd. at an average rate of ₹ 7.30 per dcm2. The quantity sold is 2977919 dcm2. The rates charged for identical products compare favourably with the rate charged to the two firms. In this connection, the following points also need to be noted: (a) The associated firms are tax paying companies paying identical rates of taxes. Hence, the tax saving as a group cannot be achieved by charging differential rates. (b) The quantity sold to the associated firms is several times higher, as compared to the sales made to the outside parties and is not comparable. (c) The hide is a natural product derived out of the slaughtered or dead animals. The animals, being living beings, are of different sizes and shapes and are not identical suffer from various sicknesses, injuries, infirmities etc. Hence, the leather derived out of the animals is of varying qualities, described as 1st quality and IInd quality etc. The outside parties buy only 1st quality materi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the sale of dressed buff hide has been made at varying rates from ₹ 7.15 to ₹ 4.4 per dm2. It was explained that the sale to M/s Popular was of a very small quantity and that too of a single quality, whereas sale to Treadstone is-of much bigger quantity and also of varying qualities, which is evident from the bills drawn. It was explained that there was a lot of variation in the quality of leather sold and thus the rates would vary greatly between the qualities. Therefore, one cannot compare the average rate of sale made to Treadstone with that of M/s Popular, where only one quality in small lot was sold. In view of the aforesaid explanation, I am of the considered view that the comparison drawn by the AO was erroneous since:- i) he has compared the rates of number of hides sold as against the rates per dm2 of the hides sold ii) he has not considered the difference in quantity and quality sold. 12.2.1 Accordingly, it cannot be said that goods have been sold at lesser price to Treadstone Ltd. in this view of the matter, the addition of ₹ 49,09,357/- made by the AO stands deleted. 16. Aggrieved, the Revenue has preferred an appeal before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on the leather taken out of drums while the Special Auditors has treated the leather out of drums as finally finished stock. The Special Auditors were consulted in this respect and they also agreed that some chemical treatment still remains to be done even when the leather is. taken out of drums but, as complete details were not provided by the assessee during the special audit, they have excluded the same, although, they also have mentioned the same has 'finishing leather' and not 'finished leather. In view of this situation the working of ratio done by the assessee appears to be more realistic and the same is adopted for calculation. The Special Auditors have taken the industry norms of the above ratio at 50% to 60%. Third Patiy inquiries were made from the Central Leather Research Institute, Jajmau, Kanpur/ Vide their letter dated 20.6.2011 they have given this ratio at 60% to 70% for normal leather and have also added that, thickness, source, health of the animal and type of leather to be produced play a major role in the chemical cost variation meaning thereby that, there is an element of variation possible. The assessee was a/so required to give its explan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer has not taken a cognizance of their remarks thickness, source, health of the animal and type of the leather to be produced plays a major role in the chemical cost variation. It was further contended that the Assessing Officer himself has observed that percentage of chemicals consumed during the year have come down to 87.08% during the previous year, therefore, the consumption of chemicals in the earlier year, which was higher than the year under assessment, has already been accepted by the Department. The CIT(A) reexamined the claim of the assessee, in the light of replies and various evidence and the CIT(A) was of the view that the institute has categorically stated that the consumption of chemical in respect of samples given vary from ₹ 30/- to 50/- per Kg. of the raw hides whereas consumption of chemicals per square ft. of finished leather would vary to ₹ 35/- to ₹ 60/-. The CIT(A) accordingly restore the matter to the AO with a direction to determine the average cost of consumption of chemicals/ per sq. ft/kg of finished leather/raw hide and if such chemical consumption is within the outer norms as given by the institute, no addition would be required to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee to contact us for any further assistance on public interest. For personal meeting as desired in your above referred letter, you are invited to visit our office or alternatively, one of our colleagues can visit yours. The meeting may be fixed with mutual discussion over phone at Dr. A. Garg -9935356901 P.K. Bhattacharyya -9839757321 \ it may please be noted that the above opinion is technical and not intended for any advertisement/ publicity/legal purpose. The Institute shall be indemnified against any dispute arising out of issue of this letter. With kind regards, Sd. P.K. Bhattacharyya Scientist To, The Deputy Commissioner of Income Tax, Circle-5,15/295-A, Civil Lines, Kanpur Sub: Manufacturing of Finished Leather from Raw Hides-Providing information of Weight wise Ratios of Consumption of Consumable Stores of Raw Hide- Request Regarding. Sir, With reference to your letter no. nildt. 11.07.11 regarding the subject cited above, please note our comments as follows. 1. Due to several reasons, cost of chemicals and raw hide/finished leather ratios vary from case to case. 2. Consumption of chemicals depend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are efficiently utilized. 1. Consumption of chemicals per kg weight of raw hide could be ₹ 30,00 to ₹ 50.00. 2. Consumption of chemicals per Sq. ff of finished leather could be ₹ 35.00 to ₹ 60.00 It is important to mention that above figures are only assumptions and based on information collected from Industry sources Our institute does not have any commercial activity and therefore cost estimates are not practiced. Industry and Govt, departments such as customs send samples for technical opinion and pay @ ₹ 5515.00 per sample in the form of Demand draft towards our fees. It is therefore requested to take necessary action to enclose a required bank draft towards our fees for providing technical opinion as you may require in future. You may ask the party to deposit draft as customs do for the samples drawn by them. Last but not the least, may I apologise for the delay in responding because I received your letter only after returning back from my official deputation to Hyderabad. I am really sorry for the inconvenience. If may please be noted that the above opinion is technical and not intended for any advertise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e jurisdiction of the assessee was with ACIT-5, Kanpur, whereas the assessment has been framed by the DCIT-5, Kanpur and there being no order under section 127 of the Act, transferring the file from ACIT-5 to DCIT-5, the assessment framed is without jurisdiction, bad in law and be quashed. 03. Because the CIT(A) has erred on facts and in law in upholding the disallowance of ₹ 25,000/- made by the Assessing Officer by applying the provisions of section 40(a)(ia) of the Act, which addition is contrary to facts, bad in law and be deleted. 04. Because the CIT(A) has erred on facts and in law in upholding the disallowance of ₹ 1,41,753/- incurred on freight and cartage (inward) expenses without appreciating the facts and circumstances of the case. 05. Because the CJT(A) has erred on facts and in law in upholding the disallowance of ₹ 30,099/- in the name of Irfan Hyderabad, being amount debited to purchase account without appreciating the facts and circumstances of the case, which amount being relatable to business and being written off, the same is allowable and be deleted. 06. Because the CIT(A) has erred on facts and in law in upholding the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was issued on 04.08.2009. Later on, another notice dated 06.11.2009 u/s 142(1) was issued alongwith questionnaire. The case was transferred vide CIT s order u/s 127(1) dated 21.01.2010 to ACIT-4, Kanpur. No copy of the order passed u/s 127(1) dated 21.01.2010 was served upon the assessee. Therefore, the notice u/s 143(2) and 142(1) were issued on 15.04.2010 by the ACIT-4. Again an order dated 06.10.2010 was passed by the CIT-II Kanpur transferring the jurisdiction to ACIT-5, Kanpur. Again no copy of the order passed u/s 127(1) dated 06.10.2010 was provided to the assessee. However the assessment order has been passed by the DCIT, Circle-5, Kanpur. No order had been passed u/s 127 transferring the file from ACIT-5, Kanpur to DCIT, Circle-5, Kanpour. No order having been passed u/s 127(1) transferring the file from ACIT- 5 to DCIT, Circle-5 Kanpur, the impugned assessment order is without jurisdiction in as much as DCIT, Circle-5 did not have the jurisdiction to frame the assessment. 24. The Ld. DR has contended that notices were issued by the Assessing Officer having jurisdiction over the assessee at the relevant point of time. The first notice u/s 143(2) was issued by the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Aggrieved, assessee preferred an appeal before the CIT(A) with the submission that the copy of the account of Mr. G.C. Agarwal, which was placed before the CIT(A), it is clear that the payment was splitted in the fraction of ₹ 20,000/- as professional charges and ₹ 5000/- as accountancy fees. It was further contended that bonafide of the expenditure and the identity of Shri G.C. Agarwal was not doubted, therefore there should not be any disallowance. The CIT(A) was not convinced with the explanation of the assessee and he confirmed the addition. Now, the assessee is before us with the submission that even the recipient has paid taxes on this amount, therefore, no disallowance can be made u/s 40(a)(ia) of the Act in the light of various judicial pronouncement. 27. Ld. DR on the other hand, has contended that in such circumstances, the matter may be restored back to the AO for verification of these facts, whether the tax was paid by the recipient and if paid no disallowance can be made u/s 40(a)(ia) of the Act in the hands of the assessee. 28. Having carefully examined the order of the lower authorities, in the light of rival submission, we find force in the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lls but the assessee could not furnish the bills and the AO has made the disallowance of ₹ 30,099/- for want of corroborating evidence. Before the CIT(A), it was contended that account of Mr. Irfan Hyderabad showed a debit balance in the beginning of the year. The balance has been carried forward from earlier years and is not recoverable. The amount being bad debt was required to be written off as such. Inadvertently the dealing clerk debited the respective expense heads to clear the debit balances, instead of writing off as bad debts. This explanation was not accepted by the CIT(A) and he confirmed the addition. Ld. counsel for the assessee further contended that if it is not a bad debt the assessee s clerk has made incorrect entries instead of claiming it to be a bad debts. During the course of hearing, Ld. counsel for the assessee has contended that let the matter be send back to the AO to verify the facts. If the assessee succeeds in establishing it to be a bad debt, same be allowed. Ld. DR has placed reliance upon the order of the CIT(A). 32. Having carefully examined the orders of the lower authorities, we are of the view that it is not clear from the orders of lower ..... X X X X Extracts X X X X X X X X Extracts X X X X
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