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Gillette India Ltd. Versus Joint Commissioner of Income-Tax (Asst.) Special Range Alwar

IT Appeal Nos. 273, 363 and 388 (JP.) of 2003 - Dated:- 9-6-2006 - I. C. Sudhir (Judicial Member) And B. P. Jain (Accountant Member) For the Appellant : P. C. Parwal and Bhupinder Mantri For the Respondent : P. K. Sharma, M. S. Meena ORDER B. P. Jain (Accountant Member) The above mentioned appeals have been filed by the assessee against two different orders of the ld. CIT(A) dated 5-3-2003 and 4-4-2003 respectively. The Department has filed the cross appeal against the order of the ld. CIT(A) da .....

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assessee has claimed a deduction under section 43B of the Act towards payment of ₹ 2.50 Crores on the basis of copy of challan enclosed with the return. As per Challan, the amount was deposited under the head Miscellaneous and further it was narrated in the challan that, deposit is being made under Protest in pursuance of Investigations being carried out by DGAE, New Delhi. In the circumstances of the case when the DOAE, New Delhi raised the demand during the financial year, printed bookle .....

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payment. The Assessing Officer did not accept the Explanation of the assessee and the Assessing Officer was of the view that the assessee has made the payment on 14-3-1998 during the relevant financial year but the same has not been debited to P&L A/c on one hand and it is not clear against which head and for which period this payment has been made by the assessee and therefore, a deduction under section 43B of the Act cannot be allowed for such payment. Therefore, the Assessing Officer disa .....

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ppellant even in the remand/appellate proceedings. The appellant was specifically asked to make these things clear by means of necessary evidences but it failed to do so. In the remand report also the Assessing Officer has mentioned that payment did not pertain to the current year. Other material fact is that the amount paid cannot be said to be a determined liability of the appellant for the regular excise duty of any of the accounting periods. Though the amount was asked to be paid by the orde .....

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998 by Challan No. 109 under protest. This fact is clearly mentioned in the challan that the payment has only been made in pursuance of the investigations carried out by the DGAE, New Delhi and this payment is protested. Under the facts, therefore, it cannot be said that it was a payment of determined liability on account of excise duty. This fact has been recognized by appellant himself by treating the amount paid as an advance in their books of account. This finding is further corroborated by .....

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was refunded. Therefore, this payment is certainly not of any accrued/determined liability and it is only an advance payment/deposit made during the accounting period. The Assessing Officer was thus justified in not considering it as a determined/accrued liability and not allowing it on payment basis under section 43B of the Income-tax Act. This disallowance is therefore, confirmed." 5. The ld. Counsel for the assessee argued that the payment of ₹ 2.50 crores made on 19-3-1998 is an .....

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1] 116 Taxman 606. The accounting treatment is not relevant for ascertaining the claim of deduction was further argued by the ld. Counsel for the assessee by relying upon various decisions of the Courts. 6. The ld. D/R on the other hand argued that the payment of ₹ 2.5 crores during this assessment year was only a deposit of money voluntarily made by ISP and has been treated in the books of account of ISP as an advance. It was only a contingent payment. The ld. CIT(A) was therefore, fully .....

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returning the allegations made in the show cause notice issued in this regard, such liability on account of excise duty was a contingent liability. Therefore, it was held not allowable as a deduction. The ld. D/R relied upon the following decisions in support of his arguments : 1.Indian Smelting & Refining Co. Ltd. [2001] 116 Taxman 606 (SC). 2.Standard Mills Co. Ltd. v. CIT [1998] 229 ITR 366 1 (Bom.) 7. After appreciation of facts, we find that the assessee is having its own manufacturing .....

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their own investment, sales-tax, income-tax, excise and ESI/PF registrations. In terms of agreement by the assesses with these job workers, they were required to assemble and pack shaving products like razors, cartridges containing blades etc. in their factories conforming strictly to the drawings, specifications and instructions provided by the assessee. For this purpose assesses was required to supply packing and materials like labels, cartoons, boxes etc. and the ownership of these material g .....

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out on the basis of 1000 units of the products manufactured by job workers and the Central Excise duty payable on them by job workers. At the time of clearance of finished goods the job workers pay central excise duty at a price based on the value of the components, parts and packaging materials supplied by the assessee company plus job charges including profit margin of the job workers. 8. Show cause notices were issued to M/s. GSE dated 4-9-1997, 4-11-1997 and 1-5-1998 with regard to a demand .....

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ded to the assessable value of the goods manufactured on job work basis by M/s. KAE and thereafter series of show cause notices from 4-11-1993 to 20-1-1997 were issued to M/s. KAE for demanding central excise duty running into crores of rupees. 9. Apart from above show cause notices issued to M/s. GME, M/s. KAE, M/s. GSC, two show cause notices were issued to the assessee dated 2-1-1998 and 3-4-1998 by the Superintendent of Central Excise, Bhiwadi, (Raj.) alleging that the components and parts c .....

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s pending adjudication and appeal before various statutory authorities, it appears that an investigation was commenced by the officers Directorate General of Anti Evasion. New Delhi and a show cause notice dated 4-5-1998 was issued to the assessee alongwith job workers. There were many allegations in the show cause notice, mainly the goods manufactured at assessee s factory were never offered for sale and were only moved on stock transfer basis. The status of job workers was only hired labour on .....

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e goods was very well known when it was entered the market stream and the same represented the intrinsic value of the goods in which all the considerations have been entered. (These facts had been taken from the Civil Appeal Order No. D/8526/2001 dated 10-9-2001 of Hon ble Supreme Court of India where civil appeal filed by Central Excise Department, New Delhi was dismissed). Ultimately, dismissing the said civil appeal the Hon ble Supreme Court had given a finding as under : "In view of our .....

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e cases of provisional assessments to the jurisdictional proper officer for determination and finalization as provided by law. The appeals are allowed as above." 10. In view of the facts discussed above, we find that the assessee was issued show cause notices on 2-1-1998, 3-4-1998 and 4-5-1998. At the stage of issuing of show cause notice or on or before the close of the accounting year ending 31-3-1998, there was no order of any excise authority with which the assessee was required to pay .....

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der protest in pursuance of investigations being carried out by DGAE, New Delhi". 11. Now the issue before us is that whether any payment made by the assessee in lieu of show cause notice by the excise department is an allowable deduction under section 37(1) read with section 43B of the Act. Law is well settled that expenditure, which is deductible for Income-tax purposes is towards a liability which is actually existing in the year of account. The ld. Counsel for the assessee has relied up .....

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tem of accounting and, without disputing the liability to pay the sales tax, has made a provision for its payment in its account, even though he has not actually paid the tax over to the authorities the assessee is entitled to deduction in respect of the provision for sales tax from the income of the assessee under section 10(2)(xv ) of the Indian Income-tax Act, 1922. Under the provisions of the Bengal Finance (Sales Tax) Act, 1941, and the rules framed thereunder there is an obligation on the .....

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r and actual liability under the Bengal Finance (Sales Tax) Act, 1941 had arisen on the assessee, for which the assessee made a provision in its books of account. Though the said actual liability was not paid by the assessee in that case and the Hon ble Calcutta High Court in that case had held that such liability to pay sales tax is not dependent upon the assessment or demand but is an obligation to pay the tax either annually, quarterly or monthly as the case may be under the particular rule g .....

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quot;43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of (a)any sum payable by the assessee by way of tax, duty cess or fee, by whatever name called, under any law for the time being in force. First Proviso : Provided that nothing contained in this section shall apply in relation to any sum referred to in clause (a) (or clause (c) or clause (d) or clause (e ) which is actually paid by the assessee on or before t .....

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been payable within that year under the relevant law". By reading the language contained in section 43B, it is very clear that a deduction which is otherwise allowable under this Act in respect of any sum payable for which the assessee has incurred liability in the previous year, shall be allowable though such sum have not been payable within that year under the relevant law. But the assessee in the present has not incurred any liability in the impugned year. 14. The object of enacting sec .....

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ound that the liability to pay these amounts had been incurred by them in the relevant previous year, it was to stop this mischief that section 43B was inserted (Allied Motors (P.) Ltd. v. CIT [1997] 224 ITR 677, 682-831 (SC). The relevant part of the decision of the Apex Court in the case of Allied Motors (P.) Ltd. (supra) is as under: "However, any sum payable in clause (a ) of section 43B was open to the interpretation that the amount payable in a particular year should also be statutori .....

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n put in record by either parties. Show cause notices dated 3-4-1998 and 4-5-1998 were also issued has been gathered by us from the record available before us. Therefore, no order till the date 4-5-1998 had been passed by any excise authority with regard to the payment of the said sum. The assessee made the payment of ₹ 2.50 crores under protest on 19-3-1998, which means the assessee does not agree with the said payment since no liability according to the assessee should arise. Therefore, .....

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he liability of the assessee in the present case remains a contingent liability which may or may not be payable by the assessee. 16. Unless an expenditure is found to be allowable under any provision of the Act and more particularly under section 37(1) of the Act, section 43f6 cannot be invoked. In other words, allowability of an expenditure is a condition precedent before invoking section 43-B of the Act. Therefore, for any expenditure to be allowed under section 37(1) of the Act or under secti .....

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s been held as under: "Expenditure which is deductible for Income-tax purposes is towards a liability actually existing in the year of account. Contingent liabilities do not constitute expenditure and cannot be the subject matter of deduction even under the mercantile system of accounting. The Income-tax law makes a distinction between actual liability in praesenti and a liability de futuro which for the time being, is only contingent. The former is deductible but not the latter." Furt .....

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y calculated. Accordingly, three show cause notices were issued asking the assessee to show cause as to why demand should not be made for payment of ₹ 90,22,783. The assessee did not admit any liability and showed cause accordingly. No adjudication was made during the relevant previous year nor any demand was raised against the assessee. The adjudication was made much later in December, 1982, when the cause shown by the assessee was accepted and the proceedings initiated by the above three .....

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ter the end of the accounting year. On appeal, the Commissioner (Appeals) took note of the fact that the cause shown by the assessee was later accepted and the proceedings initiated pursuant thereto were dropped by the excise authorities and, thus, there was no demand at any point of time. In view of the above, he not only rejected the assessee s claim for deduction of ₹ 23,42,687, but also enhanced the assessment by the amount allowed by the Assessing Officer i.e., ₹ 66,80,687. On a .....

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use refuting the allegations made in the show cause notices. In fact in the instant case the cause shown by the assessee was accepted by the excise authorities and proceedings initiated by the show cause notices were dropped. It was, thus, clear that the liability claimed by the assessee as a liability on account of excise duty was merely a contingent liability which could not constitute expenditure for the purposes of income-tax. Hence, the Tribunal was not justified in allowing the claim of th .....

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ce by excise authorities which was not admitted by the assessee and the payment has not been made by the assessee in view of any order of the excise authorities cannot be said that the assessee had made the payment for the statutory liability on the assessee for the impugned year. The said payment is therefore cannot be allowed as a deduction under section 43B of the Act. The assessee had argued that entries in the books of account are not determinative of profit & loss of the assessee and h .....

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deduction under section 37(1) read with section 43B of the Act. The assessee had shown the said payment of ₹ 2.50 crores as advance in its books of account, does not prove that the assessee has incurred the actual liability during the impugned year or in the earlier years. Therefore, in the circumstances and facts of the case, the amount of ₹ 2.50 crores paid by the assessee on 19-3-1998 cannot be allowed under section 43B of the Act as claimed by the assessee. Hence we uphold the d .....

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ion in this regard was that the said amount has been debited according to accounting policy of the company. The Tribunal in assessee s own case for the assessment year 1990-91 vide ITA No. 944/JP/93 has held that the increase in liability due to foreign fluctuation is not allowable on the basis of revaluation of the liability at the end of the accounting year but it has to be allowed only in the year in which the payment is made. Therefore, as per the decision of the Tribunal in assessee s own c .....

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s and unpaid amount is ₹ 30.31 lacs. There is no provision under the Act under which unpaid amount is not allowable. When accounts are prepared on mercantile basis all liabilities, which accrue, is to be allowed as deduction unless it is specifically not allowable under any section. Hence the liability of ₹ 30.31 lacs needs to be allowed. 2. The assessee raised External Commercial Borrowing from Gillette U.K. Ltd. In the earlier years. It is a current liability utilized by assessee f .....

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the year in which the exchange loss has arisen. 3. Several decisions also support the case of assessee where it was held that if the exchange difference is allowed on revenue account and as a result of trading activity, it has to be allowed as revenue expenditure in the year in which such liability accrues if the method of accounting followed is mercantile. ONGC v. Dy. CIT 261 ITR 1 (Delhi)(AT-SB) Bhel v. Dy. CIT 98 TTJ 565 (Del.) Sutlej Cotton Mills Ltd. v. CIT 116 ITR 1 (SC) CIT v. Martin Har .....

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trading loss as per any other loss. (ii)The cause which occasions the loss is immaterial; what is material is whether the loss has been occurred the in the course of earning on the business or is incidental to it. (iii)If there is loss in trading asset, it would be a trading loss, whatever be its cause, because it would be a loss in the course of carrying on the business. (iv)Loss in respect of circulating capital is revenue loss whereas loss in respect of fixed capital is not. (v)Loss arising .....

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ed or had originally been utilized for acquisition of fixed asset, if at the time of devaluation it had changed it s character and had assumed the new character of stock in trade or circulating capital, the loss that occurred on account of devaluation shall be a revenue loss and not a capital loss. (vii)The way in which the entries are made by an assessee in the books of accounts is not determinative of the question whether the assessee has earned any profit or suffered any loss. What is necessa .....

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ot; 23. The ld. D/R on the other hand argued that the assessee was provided a long term finance of one million US dollars for five years and as per clause 3 of the loan agreement, the purpose of loan is to finance long term working capital requirement of the assessee and as per clause 7 of this agreement, the assessee shall repay the principal amount borrowed in half year installments and first instalment shall be due six months after the date of remittance of loan together with interest payable .....

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until the period of six monthly rests corresponds to end of financial year which is not the case of the assessee. The decision cited by ld. Counsel for the assessee are not applicable in the present case. Therefore, the liability on account of foreign exchange fluctuation arises only by the period of six monthly rests from the date of remittance expires. Hence, the ld. CIT(A) and Assessing Officer was justified in not allowing the liability of ₹ 30,31,455 which has arisen on account of for .....

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s the said liability of the foreign currency at the end of each year in terms of Indian Rupees at the exchange rate prevailing on that date as the assessee is following mercantile system of accounting. The issue before us is whether the liability amounting to ₹ 30,31,455 which has arisen on account of foreign exchange fluctuation as at the end of the year is a liability which is allowable loss/expenditure during the year. The ld. Counsel for the assessee had mentioned certain principles wh .....

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exchange fluctuation can be provided for as at the end of the financial year or not The ld. Counsel for the assessee in support of his argument had relied upon the Delhi Special Bench decision in the case of ONGC v. Dy. CIT 261 ITR 1 (AT), the head notes of this decision reads as under : "The assessee i.e., ONGC, which is a wholly owned Government of India Undertaking, established under the ONGC Act, 1959, for exploration, exploitation and extraction of mineral oils, had filed its return fo .....

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uch loss was a notional loss. The was upheld by the Commissioner (Appeals). On further appeal: Held, that in order to find out if an expenditure is deductible the following have to be taken into account (i) whether the system of accounting followed by the assessee is mercantile system, which brings into debit the expenditure amount for which a legal liability has been incurred before it is actually disbursed and brings into credit what is due, immediately it becomes due and before it is actually .....

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books both in respect of losses and gains is as per nationally accepted accounting standards; (vi) whether the system adopted by the assessee is fair and reasonable or is adopted only with a view to reducing the incidence of taxation. The method of accounting adopted by the assessee right from the assessment year 1982-83 was the mercantile system and it had been consistently claiming the losses suffered by it on account of fluctuation in foreign currency rates only on accrual basis. In fact, in .....

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he losses suffered on account of fluctuation in foreign currency rates. By adopting the same accounting principles that were adopted in the year under consideration, the assessee had shown a gain of ₹ 293.37 crores during the assessment year 1997-98 because the Indian rupee appreciated as compared to foreign currency. The assessee offered this amount for taxation and the Department also had taxed the same. The Department could not be permitted to deny the claim in one year and in another y .....

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iabilities should be restated and loss should be charged in the profit and loss account. However, deferral of the liability over the remaining term of the liability is not permitted if such losses are likely to recur. Thus, the claim made by the assessee was according to the accepted accounting standards. The ONGC was a wholly owned Government of India undertaking. Admittedly, its accounts were prepared in accordance with the provisions of the Companies Act, 1956. They were duly audited by the C .....

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a consistent method of accounting on the basis of principles of commercial sense and maintaining mercantile system of accounting. The assessee is maintaining mercantile system of accounting in accordance with accounting standard II issued by Institute of Chartered Accountant of India which came into effect on or after 1-4-1987, para 23 and 25(a) of the said accounting standard reads as under : "23. At each balance sheet date, there may be items of foreign currency assets and liabilities, i .....

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and 25. 25(a) In the case of long term liabilities other tan those incurred for the acquisition of fixed assets, if the result of conversion at the closing rate is an overall net gain, such gain should not be taken into account and the long term liabilities should continue to appear in the books at the rates at which they were originally recorded. On the other hand, if the result is a net loss, the long term liabilities should be restated and the loss should be charged in the profit and loss st .....

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nts of India and in view of decision of Delhi Special Bench in the case of ONGC (supra) and other decisions relied upon by the assessee, we are of the considered view that loss arising to the assessee as a result of fluctuation in foreign exchange rate on the closing day of the year is a loss incurred by the assessee and the said loss is not a loss which can be called as a notional loss. The ld. D/R had argued that in assessee s own case in the year 1990-91 the said loss was disallowed on the ba .....

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ctuation loss is allowable against the income of the assessee. In view of above discussions, we hold that the foreign exchange fluctuation loss is an allowable expenditure and accordingly we reverse the order of ld. CIT(A) on this issue. Thus ground no. 2 of the assessee is allowed. 27. In Ground no. 3, the assessee is aggrieved that the ld. CIT(A) erred in confirming disallowance of ₹ 13.00 lacs out of domestic traveling expenses. 28. The brief facts of this ground are contained at page 3 .....

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the employees who traveled abroad, destination of journey, purpose of journey, tour report and its relevancy to the business carried on by the assessee-company has not been furnished. Facts and circumstances of the case are identical to the assessment year 1996-97. The assessee was asked to furnish the details of traveling including foreign and inland. In response to this query, the assessee has furnished the detail of traveling bifurcating local and overseas traveling in Annexure-6 of the reply .....

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7; 22,84,183 Eastern region ₹ 13,42,428 Western region ₹ 15,93,827 The assesses company also failed to give break up of local traveling expenses exceeding ₹ 10,000 in respect of various regions mentioned above. In these circumstances an amount of ₹ 13 lacs is disallowed and added back." The ld. CIT(A) vide page 10 and 11 of his order has observed as under : "It has been pleaded before me that the adequate opportunity was not provided to the appellant for submiss .....

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essing Officer on this issue. He was then told to furnish the Explanation, for the same by order sheet noting dated 19-2-2003. In reply to this the Assessing Officer has intimated that a specific opportunity was given to the appellant on 14-11-2002 to provide details in regard to domestic travel expenses as mentioned in the assessment order. But the appellant did not furnish these details on next two hearings and therefore they could not be examined. After the receipt of the remand repot a heari .....

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lacs respectively were deleted/reduced by the CIT (Appeals). In assessment year 1996-97 again a disallowance of ₹ 1,97,345 has been made out of the total traveling expenses of ₹ 2.96 crores but the assessee is in appeal against this disallowance. He, therefore, argued that the disallowance made by the Assessing Officer of ₹ 13,00,000 out of domestic traveling should be deleted. I have considered the facts of the case and the arguments of both the sides. This is a case where in .....

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ded, that reasonable opportunity was not given by the Assessing Officer to provide these details. The appellant was therefore given more opportunities through the remand proceedings to furnish these details but they were still not submitted. Even the amount for which the details were not furnished is of ₹ 1,04,57,687. The disallowance made by the Assessing Officer is only 10 per cent of the total expenditure in question which is very reasonable under the facts and circumstances of the case .....

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essing Officer even in remand proceedings. The assessee was given opportunity again by the ld. CIT(A), even then the assessee did not furnish any details before the ld. CIT(A). The argument of the ld. Counsel for the assessee before the ld. CIT(A) and before us in this regard was that similar disallowances have been made by the Assessing Officer in the has but they have been deleted by the ld. CIT(A) or no disallowance has been made by the Assessing Officer in some years. The ld. Counsel for the .....

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assessee has not furnished the details of expenses amounting to ₹ 1,04,57,687. In such circumstances it is not possible for the Assessing Officer to find out the genuineness of the expenditure in spite of the fact that the assessee had been given opportunities time and again. The assessee was given opportunity to furnish the details by the Assessing Officer during the course of preparation of remand report but the assessee did not bother to furnish the details. The ld. CIT(A) also gave an .....

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internal and statutory auditors have not pointed out any defect in such expenditure. Though statutory auditor does not give the certification of genuineness of expenses but such arguments are convincing to some extent but that does not serve the purpose of genuineness of expenditure as a wholes. Therefore, in the circumstances of the case and looking into the internal control of the assessee, the Assessing Officer has rightly disallowed an expenditure of ₹ 13,00,000 which in the circumsta .....

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are as per page 4 & 5 of Assessing Officer s order are as under: "The assessee company has furnished the details of traveling overseas amounting to ₹ 48,86,466 alongwith photo copies of certain vouchers, invoices/bills of Thomas Cook, expenditure statement prepared by the assessee. On scrutiny of these the following defects have been noticed : (1) From S.No. 1 to 13 of Annexure 6, the assessee has taken the figures of traveling expenses without the discount given by the traveling .....

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or which no details have been furnished. (5) Most of the trips performed by the employee are to the European countries only, wherein the assessee company had set up its net work in European countries prior to India. It appears that the assessee company has incurred expenses on its employees as LTC but given colour of business tours to avoid taxes in its hands and also in the hands of employees. Further the assessee company failed to establish the outcome of these overseas tours as no tour report .....

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ation. The remaining detail of accommodation has been supported by only City Bank credit note made by the assessee-company and these are not supported by the ills of hotels issued to the concerned visitors. In absence of the bills, it cannot be decided whether the employee enjoyed the accommodation independently or along with his/her spouse. Details of ₹ 30,95,216 (below ₹ 10,000) has not been supported by the evidences. In these circumstances, a disallowance of ₹ 10 lacs is be .....

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to furnish them. In the past only minor disallowances were made on different grounds and therefore the past precedence is not binding. The disallowance made by the Assessing Officer is on lump sum basis only because the specific details required by him were not furnished. Before mew it was pleaded that reasonable opportunity was not given by the Assessing Officer to provide these details. The appellant was therefore given more opportunities through the remand proceedings to furnish these detail .....

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xpenses is therefore commercially non expedient. All the bills of the hotels in regard to the stay overseas have not been submitted which could have proved this fact and helped to ascertain the quantum of personal expenses. The purpose and the commercial expediency of the visits overseas has also not been established by the appellant by means of necessary evidence. The Assessing Officer was, therefore, justified in making the disallowance. However, the disallowance made by the Assessing Officer .....

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assessee has pointed out many defects i.e. the assessee has taken the figures of traveling expenses without the discount given by the traveling agent, photo copies of booking order in some cases have not been furnished, expenses on spouse of employees have also been incurred by the assessee, expenses below ₹ 10,000 amounting to ₹ 9,36,620 for which there is no detail furnished, the assessee in the opinion of Assessing Officer had incurred expenses on LIC to European countries but ha .....

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he assessee did not submit the details to the Assessing Officer even during the remand proceedings and even before the ld. CIT(A). In the circumstances and facts of the case it was not possible for the Assessing Officer to find out the genuineness of the expenditure and ld. CIT(A) has rightly restricted the total disallowance at 10 per cent of ₹ 1,15,09,042. Therefore we find no we find no infirmity in the order of the ld. CIT(A) on this issue. Thus ground no. 4 of the assessee is dismisse .....

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d Assessing Officer was of the view that there is no change in circumstances and therefore disallowed the sum of ₹ 25,21,567 and added the same to the income of the assessee. 37. The ld. CIT(A) confirmed the action of the Assessing Officer by observing as under : "I have considered the facts of the case and arguments of both the sides. A debt has to be allowed as bad debt according to the provisions of section 36(1)(vii ) r.w.s. 36(2) of the Income-tax Act. As per these provisions a d .....

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oks of accounts and even the entries regarding the write off have not been made. Before me also the appellant has not been able to submit any evidence/argument whatsoever to establish that these debts have been written off as bad and irrecoverable during this accounting period. No justification for treating them as bad and irrecoverable during the year has also been submitted by the appellant. Therefore, the Assessing Officer was justified in making the disallowance of ₹ 25,21,567 on this .....

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ion 36 of the Income-tax Act, before any claim for allowance for a bad debt is established, it must appear that the concerned bad debt is written off as irrecoverable in the account books of the assessee. This requirement is a condition for the grant of claim for bad debt allowance. If the debit entries posted by the assessee indicate that bad debt has been written off as irrecoverable in the accounts of the assessee, then the statutory condition stands fully complied with. If the assessee has p .....

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ar that the concerned bad debts was written off as irrecoverable in the account books of the assessee for the relevant previous year. This requirement become a condition for the grant of claim for bad debt allowance. The only requirement of section 36(2)(i)(b ) is that the concerned bad debt must have been written off as irrecoverable in the accounts of the assessee. If the debit entries posted by the assessee indicate the said fact the requisite statutory condition has got to be treated as full .....

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Prasad Tiwari 24 ITR 537 (Bom.) : The assessee claimed that two debts were doubtful of recovery. He had debited the two sums to the profit and loss account and had credited them to the doubtful debts and suspense account. The Income-tax Authorities held that as the individual accounts of the debtors in the books of the assessee had not been written off as required by the section. Held, that the two debts had been actually written off in the assessee s books within the meaning of section 10(2)(xi .....

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proof of establishing a debt as bad if he has taken steps to write it off in the previous year, left to his prudence, and it is sufficient compliance for claiming debts as bad debt under section 361(1)(vii). Similar issue for disallowance of bad debt has come up before Hon ble ITAT in assessee s own case for assessment year 1991-92 in ITA No. 1441/JP/1996 dated 12-5-2005 (PB 42-43, (para 54-58) where Hon ble ITAT set aside the issue with the direction to the Assessing Officer to obtain party-wi .....

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t. Accordingly, he inferred that such amount has not become bad and since the fact and circumstances in this regard, in his opinion, was same as in the assessment year 1996-97 where such bad debts had been disallowed, he did not accept this claim of bad debt and added this amount in the income of the assessee company. 40. The ld. CIT(A) confirmed this disallowance holding that as per provisions of section 36(i )(vii) read with section 36(2) of the Income-tax Act, a bad debt cannot be allowed onl .....

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ded for in the books of account to show the true and fair picture of the state of company. The same is, therefore, allowable as expense under section under section 36(1)(vii) of Income-tax Act. Reliance was placed in this regard on the following decisions: 1. CIT v. General Insurance Corpn. of India (No. 2) [2002] 254 ITR 204 (Bom.) 2. Vithaldas H. Dhanjibhai Bardanwala v. CIT [1981] 130 ITR 95 (Guj.) 3. CIT v. Jwala Prasad Tiwari [1953] ITR 537 (Bom.) From these cases it can be concluded that c .....

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441/JP/1996 dated 12-5-2005. Therefore the bad debts claimed for ₹ 25,21,567 are allowable deduction under section 36(1)(vii ) of the Act Hence, decision of ld. CIT (A) is reversed on this issue. Thus ground no. 5 of the assesses is allowed. 42. In Ground no. 6, the assesses is aggrieved that the ld. CIT(A) erred in confirming disallowance out of repairs and maintenance of Building at ₹ 5.00 lacs by considering the same as Capital in nature. He has further erred in holding that asses .....

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includes the following amounts. P/L new tarfelt as per ISL approved grade ₹ 155100 P/L constructing temporary sheds/stores Metering room areas I/C all civil work like Buck work. Plastering painting A.C. Sheet rooting with M.S. angle from etc. ₹ 149250 P/Replacing M.S. grideses channels, fees Angles, beams with new whenevers stru Changes are proposed layout plan. ₹ 382550 From the study of the bills raised it appears that the work done by the M/s. R.K. Agencies is not revenue n .....

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at Bhiwadi which included replacement of torned and damaged parts of building and all the repairs carried out by the assessee were of routine nature which were required to be done regularly to maintain the building functional. The Assessing Officer did not provide any opportunity to explain the nature of the expenses and disallowed the same only on the basis of narration of the bills. The Assessing Officer was asked in the remand report to give the comments. The Assessing Officer in the remand r .....

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ings assessee raised an alternate plea that if it is considered as capital in nature, the depreciation should be allowed which the Assessing Officer in the remand proceedings and the ld. CIT (A) misinterpreted that expenses had been incurred as a capital expenditure. The ld. Counsel for the assessee had argued that the material mentioned in the bills of R.K. Agencies clearly indicates the work of plastering, painting, replacing of certain items etc. which are covered under the head repairs and m .....

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ure is treated as capital then the depreciation may be allowed. Such alternate plea do not change the fact of the case and, therefore, ld. CIT (A) is not justified in confirming the addition made by the Assessing Officer and same is directed to be deleted. Thus ground no. 6 of the assessee is allowed. 47. In Ground no. 7, the assessee is aggrieved that the ld. CIT(A) erred in confirming disallowance of ₹ 6.00 lacs out of Canteen expenses and Employees Welfare Expenses. 48. We have head the .....

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377; 96,003 whereas these expenses for the month of March were ₹ 3,47,740 and similar trend was there in respect of Employees Welfare expenses and no explanation or vouchers were produced for verification of genuineness of expenses and accordingly the Assessing Officer disallowed a sum of ₹ 3,00,000 out of canteen expenses and ₹ 3,50,000 out of Employees Welfare expenses and added the same to the income of the assessee. 49. In the remand proceedings, as per comments of the Asse .....

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the ld. CIT (A), nature of the expenses suggest that part of them may not be commercially expedient and may be on hospitality of the outsiders and. therefore the ld. CIT (A) restricted the disallowance at the rate of 10 per cent of total expenses incurred by the assessee on both the heads and therefore a disallowance of ₹ 2.5 lacs was confirmed out of ₹ 3,00,000 on account of Canteen expenses and disallowance on account of Employees Welfare expenses amounting to ₹ 3.5 lacs is .....

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uld have not served any purpose since there is no adverse comments from the auditors on these expenses. The argument of the ld. Counsel for the assessee that the Assessing Officer has not given any opportunity is not tenable since the Assessing Officer during the course of assessment proceedings as well as remand proceedings had given reasonable opportunity to produce the vouchers and the explanation as regards genuineness of the expenses but it appears that the assessee was not interested in pr .....

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to the accounts of the assessee-company. The assessee has not given a logical Explanation to the variation of expenses incurred in the month of April, 1997 amounting to ₹ 96,003 and ₹ 3,47,740 incurred in the month of March, 1998. The assessee has not put on record any system of internal control on these expenses with which the lower authorities or we could peruse the matter. Assessee s explanation that the production of vouchers will not serve the purpose of the Assessing Authority .....

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nces of the case has rightly allowed a relief of ₹ 50,000 and sustained the balance of disallowance of ₹ 6 lacs under the head Employees Welfare expenses and Canteen expenses. We find no error in the order of ld. CIT (A) on this issue which is hereby, sustained as it is. Thus ground no. 7 of the assessee is dismissed. 51. In Ground no. 8, the assessee is aggrieved that the ld. CIT(A) erred in confirming disallowance of ₹ 3.00 lacs out of Stores and Spare Parts consumed Expenses .....

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377; 5,09,97,333. 53. In the remand report the Assessing Officer has mentioned that the assessee has not maintained separate movement of goods from the point of production to the point of distribution and no vouchers were produced for verification and therefore, genuineness of the expenses cannot be verified. The ld. CIT(A) looking to the circumstances of the case, confirmed the action of the Assessing Officer. 54. After perusal of the facts, we find that the assessee has been making the purchas .....

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the year as compared to last year. Though the assessee was required to make a proper explanation to the assessee which has not been done during the assessment proceedings or even the remand proceedings but at the same time we find that purchases are made through bills on a separate account for which the Assessing Officer has not found any defect in the purchase account and as argued by ld. Counsel for the assessee that such bills/vouchers for purchase of stores and spares were verifiable by the .....

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e under this head and therefore, we reverse the order of ld. CIT(A) who has wrongly sustained the additions made by the Assessing Officer on this issue. Thus we allow ground no. 8 of the assessee. 55. In Ground no. 9, the assessee is aggrieved that the ld. CIT(A) erred in confirming disallowance of ₹ 8.00 lacs out of Lost Revenue Expenses. 56. We have heard the parties. The facts of this case are as per page 7 of the Assessing Officer s order as under: "The assessee company has debite .....

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xpenses claimed and same is added back in the income of the assessee-company". 57. The ld. CIT(A) vide para xiv of his order observed as under : "The appellant filed a note on these expenses vide letter dated 30-1-2001 stating that the lost revenue expenses are in the nature of advertisement and sales promotion expenses. It was pleaded before me that the appellant was never given any opportunity to produce the vouchers and therefore the disallowance was not justified. It was further ar .....

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eport the Assessing Officer has mentioned that these expenses included the loss of goods in transit i.e. in the movement of goods from the point of production to the point of distribution. No details of these expenses had been kept by the appellant and no vouchers of them are available with it. This disallowance was therefore justified and it should be confirmed. I have examined the facts of the case and the arguments of both the sides. I find that the facts of the disallowance made in assessmen .....

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im of the appellant is not at all supported by the details of the loss at various points and the reasons for the same. No vouchers have been kept to ascertain the exact quantum of this loss. If a claim has been made by the appellant then it can be allowed only if it is established by the appellant with the help of acceptable evidences. The appellant in this case has failed to discharge the onus cast upon it in regard to the claim of loss of goods in transit. The Assessing Officer therefore was j .....

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on loss of goods in transit i.e. loss of goods when they are moved from point of production to the point of distribution. The assessee has not produced any detail or vouchers in this regard and ld. Counsel for the assessee argued that these expenses are the expenses for the purposes of the business and all the payments for these expenses are made through account payee cheques and bills are procured for each and every expense. During advertisement and sales promotion there is always likelihood t .....

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nce of ₹ 8 lacs on this head. We, therefore, reverse the order of ld. CIT(A) on this issue. Thus ground No. 9 of the assessee is allowed. 59. In Ground no. the assessee is aggrieved that the ld. CIT(A) erred in confirming the addition made by Assessing Officer in respect of foreign exchange fluctuation ₹ 30,51,455. Bad ₹ 25,21,567 and Loss on sale of fixed assets ₹ 85,64,381 in arriving book profit under section 115JA by holding that these are provisions and not ascertain .....

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which the ld. CIT(A) deleted the enhancement on two heads i.e. on account of excess depreciation amounting to ₹ 8,00,842 and on account of depreciation on fixed asset on account of foreign exchange fluctuation amounting to ₹ 5,98,737. Balance of the enhancement on following three heads was sustained by ld. CIT(A) as per reasons mentioned in his order page 23 to 29 of his order as under: (i) On account of foreign exchange fluctuation ₹ 30.31,455 (ii) On account of provision of b .....

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urpose profit and loss account is to be prepared in accordance with Part II & III of schedule VI of Companies Act, 1956." Explanation to section 115JA provides that books profit means the net profit as shown in the profit & loss account for the relevant previous year prepared under sub-section (2), as increased by : (a) the amount of Income-tax paid or payable, and the provision therefore, or (b) the amounts carried to any reserves by whatever name called; or (c) the amount or amoun .....

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1956. No other adjustment as may be made in the normal computation of income can be made in determination of book profit. The loss on account of foreign exchange fluctuation is a provision made in accounts in accordance with schedule VI of the Companies Act for meeting the ascertained liabilities. Accounting Standard 11 issued by the Institute of Chartered Accountants of India which is mandatory for preparation of Companies accounts provides that the exchange loss arising on account of restatem .....

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fter has the limited power of making increases and reduction as provided for in the explanation to the said section. The loss on account of foreign exchange is not falling in any of the clause a to above, it does not fall in clause ?? as such loss is for ascertained liabilities as per Accounting Standard 11. Hence this cannot be added in computing the book profit. Provision for bad and doubtful debts is not a lumpsum provision but is against the specific persons. List of such parties is placed a .....

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the Companies Act, clause (b ) of the Explanation is also not applicable to it. India Pistons Ltd. v. Dy. CIT [2004] 140 Taxman 611 (Mad.): If the provision for bad and doubtful debts is an ascertained liability, the amount cannot be added back to the net profit for determining the book profit under section 115J. Eicher Motor Ltd. v. Dy. CIT [2004] 1 SOT 1 (Indore): Provision for bad and doubtful debts which is not in nature of contingent liability described in clause (c ) to section 115(1A), c .....

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ited by the statutory auditor. Hence such loss claimed in the books cannot be a subject matter of adjustment in computing the book profit under section 115JAA. 62. After perusal of the facts and the decisions relied upon by the ld. Counsel for the assessee and in the circumstances of the present case, we are convinced with the arguments of ld. Counsel for the assessee. Therefore the profit for the purpose of section 115J has to be computed on the basis of profit & loss account prepared in ac .....

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ult, appeal no. 273/JP/2003 of the assessee is partly allowed. ITA No. 363/JP/03 Assessment year 1999-2000 65. Ground no. 1, the assessee is aggrieved that the ld. CIT(A) erred in confirming the disallowance of ₹ 39,80,335 being the claim of bad and doubtful debts. 66. We have heard the parties and the brief facts of this ground are that the assessee-company had claimed a deduction of ₹ 39,80,335 towards bad and doubtful debts which were debited to the Profit Loss account under secti .....

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d doubtful" in the schedule to the balance sheet. The assessee company failed to establish supplier advances or for the purpose of business or not and are connected with the business activities or not. Similarly the assessee has not established the relationship with the persons who have been shown as employees advances. As regards capital advance of ₹ 4,60,722, same is not of revenue in nature and during the course of assessment proceedings the A/R of the assessee had admitted that ca .....

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sal of the facts, we are of the view that any dad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year is allowable deduction under section 36(1)(vii) of the Act. For claiming deduction under this provision of the Act the assessee has to establish first that there is an existence of debt. In the present case the Assessing Officer s grievance as regards the debt from supplier is that the assessee has not submitted any detail with which t .....

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the Assessing Officer is required to ascertain whether there is an existence of debt before any provision is made in the books of account and similarly the details are required to be verified as regards employees advance for claiming the expenditure/loss to the income of the assessee. Therefore, the matter as regards the amount recoverable from suppliers, zone-wise debtors and employees advances is restored to the file of the Assessing Officer who will give the reasonable opportunity to the asse .....

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the assessee is partly allowed. 70. In Ground no. 2 the assessee is aggrieved that the ld. CIT(A) erred in confirming the disallowance of claim of loss on account of Foreign Exchange Fluctuation of ₹ 43,85,378. 71. We have heard the parties. The facts of the case are that the assessee has debited a sum of ₹ 1,16,38,125 as difference in foreign exchange in the P & L account out of which an amount ₹ 43,85,378 remained outstanding. The Assessing Officer was of the view that in .....

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ear 1998-99 in I.T.A No. 273/JP/03 of even date, where the claim of the assessee has been allowed. Therefore following the decision in assessee s own case for the assessment year 1998-99 (supra), we allow the claim of the assessee in ground no. 2. Thus ground no. 2 of the assessee is allowed. 74. In Ground no. 3, the assessee is aggrieved that the ld. CIT(A) erred in confirming the disallowance of ₹ 2.50 lacs on ad hoc basis out of the Travelling Expenses. 75. We have heard the parties. Th .....

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nst some trip of the employees has not been mentioned in the details. Therefore, in absence of adequate evidences it cannot be said that these trips were performed exclusively and wholly for the business purposes. On perusal of details of journey performed by Shri Pradeep Pant at Sl. No. 3 from Delhi to London, Moscow, Slpetersube, Dubai (Airways ticket no. 6893558400), it is observed that the journey was performed by Sh. Pant with Miss Pinki. This shows that family of Mr. Pant is also accompani .....

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50000 is being made on account of expenditure not incurred wholly and exclusively for business purposes. Thus, total disallowance of ₹ 2.5 lacs under this head is made." 76. The ld. CIT (A) vide page 7 & 8 of his order observed that the assessee did not provide any details during the assessment proceedings as well as during remand proceedings and the assessee has chosen not to furnish these details and after considering the facts of the case and arguments of the ld. Counsel of the .....

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planation for each trip of the person in the foreign country or the expenses incurred on their accommodation and other expenses alongwith expenses incurred on foreign travel for the family of the person who visited foreign country have not been produced before the Assessing Officer Therefore in such circumstances, leakage of revenue cannot be ruled out Hence, Assessing Officer is justified in making lumpsum disallowance for ₹ 2,50,000 out of total exercises of ₹ 34,73,670 incurred on .....

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r disallowed a sum of ₹ 1.00 lac on this account to be income of the assessee. The ld. CIT (A) confirmed the action of the Assessing Officer. 80. After perusal of the facts, we find that the assessee has not submitted the details/vouchers of staff welfare expenses during the assessment proceedings as well as during the remand proceedings. The facts of this case are similar to the assessee s own case for the assessment year 1998-99 in IT No. 273/JP/03 of even date where the Tribunal has con .....

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essee is aggrieved that the ld. CIT(A) erred in directing the Assessing Officer to treat the rent recovered as Income from Other Sources and thereby to exclude it from income computed under the head Profits Gains of Business while calculating deduction under section 80HHC. AND ITA No. 388/JP/03 (Department) Assessment year 1999-2000 82. In tills appeal, the Department is aggrieved that the ld. CIT(A) has erred in directing the Assessing Officer for not including the entire receipts of ₹ 1, .....

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under : "The assesses-company has claimed deduction under section 80HHC of ₹ 27,21,246 prior to absorption of BF depreciation of ₹ 5,49,56,926 in the computation of income enclosed with the return. In view of the provisions of section 80A read with section 80B(5), the deduction under Chapter VIA are allowable from the gross total income. Therefore, the computation of total income will be rearranged accordingly. Further, it has been noticed that the assessee-company in the Schedu .....

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ion of deduction under section 80HHC. Sh. Jai Kumar Tejwani appeared on 28-5-2001 and furnished the written submission vide letter dated 28-5-2001 and explained that the other income should be dealt as per provision of section 8HHC(4A)(baa) of the Income-tax Act, 1961 as per the note at point No. 2 already submitted vide letter dated 22-5-2001. However, at point No. 16 in the letter dated 28-5-2001 in respect of realization under the head common services expenses, it has been submitted that the .....

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p.m. recovered from GDOP Ltd. (Brawn division). Looking to the photo copies of Sample agreements it has been observed that the assessee has let out its business premises and incurred other indirect expenses under different heads and it is not possible to segregate these expenses. Therefore, it is taxable under the head income from other sources. Accordingly, entire amount of ₹ 1,92,47,604 as recovery of common service expenses appropriated on income side of P & L a/c does not qualify .....

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