TMI Blog2017 (1) TMI 1141X X X X Extracts X X X X X X X X Extracts X X X X ..... at the assessee was having its own capital greater than the loans and advances given to the directors. We are, therefore, of the considered view that no addition is warranted Treatment to subsidy received from Government of West Bengal as capital receipt - Held that:- The scheme of the West Bengal Gov. does not an all envisage giving any subsidy in respect of specific items of expenses like sales-tax, power, water, etc. and hence the same cannot be regard to be of revenue nature. Since the assessee has received the financial assistance under the same scheme, in our view, the CIT(A) was justified in following the earlier order of the Tribunal for Treatment to subsidy received from Government of West Bengal as capital receipt Addition on account of excise duty pertaining to finished goods - Held that:- The liability for the payment of the excise duty arises at the time of removal of the goods and in the instant case the finished goods are lying in the closing stock. Therefore there is no question of including the excise duty in the closing stock of the finished goods - ITA No. 136 & 200/Kol /2010 - - - Dated:- 18-1-2017 - Shri N. V. Vasudevan, Judicial Member And Shri Wasee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 63,27,475/-. During the scrutiny proceedings, AO observed that several travelling expenses were claimed on the basis of self-made vouchers. Therefore the genuineness and reasonableness of expenditure were not verified. Accordingly the AO disallowed a sum of ₹ 50,000/- and added to the total income of assessee. 8. Aggrieved, assessee preferred an appeal before Ld. CIT(A) who reduced disallowance to ₹ 20,000/- by observing as under:- I have considered the submissions of the appellant. It is a fact that there are self-made vouchers and this kind of expenditure is generally seen under local travelling . However, the AO has segregated such expenditure. Instead he made an ad-hoc disallowance. Though an element of self made vouchers do exist, the proposition of such expenditure could not be very substantial. As such the disallowance made at ₹ 50,000/ is on a higher side. I feel it would be reasonable to disallow ₹ 20,000/- instead of ₹ 50,000/- to meet the ends of justice. Accordingly, I direct the AO to restrict the disallowance to ₹ 20,000/-. The appellant gets a partial relief on this count. Being aggrieved by this, assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eating the same as non-business expense. This causes considerable hardship to the taxpayers involving them in unfruitful litigation. However in the present case the assessee being corporate claimed such travelling expenses in the immediate preceding year for ₹ 1,16,10,992/- but in the year before us it is considerably less. Therefore in the instant case ad hoc disallowance to the extent of ₹ 20,000/- of the total expenses made on probabilities which is in our view not justified as no specific item or instance of personal expenditure was found in the circumstances of the case. We have noted that the fact of expenditure was well established by the self made vouchers but the lower authorities failed to bring any instance on record any unreasonableness in the amount of expenditure and the purpose for which it was incurred whether personal or commercial. On these facts, we see no reasons to make any addition/disallowance of travelling cost. We, therefore, reverse the action of the ld. CIT(A) and allow the ground of appeal of the assessee. 11. Next issue raised by assessee in this appeal is that Ld. CIT(A) erred in confirming the order of AO by sustaining the disallowan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 41,42,250/- represents the money advance to the suppliers and therefore it was given for the purpose of assessee s business. As regards the advance to directors, the assessee submitted that it was given out of the current account of assessee and no borrowed fund was utilized in making such advance payment to the directors. The assessee further submitted that the advance to the directors has been given out of its own fund of the assessee-company. Accordingly, Ld. CIT(A) deleted the addition made on account of advance to others for ₹ 41,42,250/- but confirmed the interest pertaining to the advance to the directors for ₹ 15,06,514/- by observing as under:- I have considered the submissions of the appellant. As regards advances to others , the appellant stated that these advances were given to suppliers as in earlier years. The relevant schedule of advances has been filed. The AO commented that the advances given are not for the purpose of business. The AO has not elaborated the reasons/ observations on which he came to that conclusion. In any business, it is normal practice to give advances to suppliers. The AO has not brought on record any material evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l amount of loan as it was not used for business purposes. The Ld CIT(A) declined to interfere in the order of the AO in the case of the advance given to the directors but deleted the disallowance of interest in the case of the advances given others. The reasons for confirming the addition and deleting the additions have already been explained in the above paragraphs and are not being repeated for the sake of brevity. The controversy arises in cases where funds are pumped out of business without any commercial purposes. And the funds of the business comprise both type of funds namely borrowed as well as own funds. In all such cases where mixed funds are used for both business and other than business purposes, there is no presumption that moneys used for other purposes came out of borrowed funds. It can be said that interest free funds given are out of own funds to the extent of capital and reserves, and this proposition is supported by the decision of Hon'ble Andhra Pradesh High Court in the case of CIT Vs. Gopikrishna Murlidhar, 47 ITR 469 (AP) and in the said case their Lordships accepted the contention that the assessee is entitled to withdraw from capital. The Facts of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not conflict with any express statutory provisions as held by the Hon'ble Supreme Court in CIT Vs. U.P. State Industrial Development Corporation, 225 ITR 703(SC). Thus such problem can be resolved by analyzing statement of accounts and in particular balance-sheet. Where details of own capital, borrowed funds and interest free funds given or utilized for other purposes are available. There is no much difficulties in examination of right to replace own capital to borrow funds in case of individual and partnership firm. But in the case of company, capital is fund of public/ share holders which is managed by the Board of Directors. In the case of company there are certain restrictions under the Companies Act in use of capital/fund for personal benefits. Such replacement is required to be authorized by proper resolution and must be in conformity with the provisions of Companies Act and rules and regulations of regulatory bodies. Same are required to reflect in the financial statements prepared on the basis of audited books of account. The Auditor is also required to point out such replacement/utilization of funds. If funds are diverted in contravention of statutory provisions, then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sult, the appeal filed by the assessee is allowed. Now coming to remaining issue of Revenue s appeal in ITA No.200/Kol/2010. 22. Next issue raised by Revenue in this appeal is that Ld. CIT(A) erred in directing the AO to treat the subsidy received from Government of West Bengal as capital receipt. 23. During the year, assessee has received subsidy from the Govt. of West Bengal for ₹ 29,53,161/- under Industrial Promotion Assistance Scheme and said subsidy was given for the expansion of capacity, modernization and improving the marketing capability of assessee-company. The AO called upon the assessee to explain why the said amount should not be added to the total income by treating the subsidy as revenue in nature. In compliance thereto, assessee submitted that the Co-ordinate Bench in assessee s own case for AYs 1997-98, 1998-99 and 2001-02 as treated capital receipt. However, AO treated the subsidy as revenue in nature because option was given to the assessee to adjust the subsidy with the commercial taxes. The AO also observed that the subsidy amount has not been reduced from the capital asset. In view of above, AO treated the subsidy as revenue in nature and added ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r careful consideration to the rival submissions made before us and have perused the orders of tax authorities. We have also considered the case law cited by both the parties and the appellate orders earlier passed by the Coordinate Bench of ITAT, Kolkata as referred above. We find that the same issue came up for consideration before the ITAT C Bench, Kolkata in the case of Mendine Pharmaceutical (P) Ltd. for assessment year 1997-98 in ITA No. 2403/Kol/2003. In its order dated 26th March, 2004, the Tribunal recorded the following material finding :- We have perused the orders of the Tribunal placed on record. We find that the scheme under which the assessee before us received the financial assistance, has been examined in detail in those earlier orders by the Tribunal. The Tribunal in those cases has observed that there is nothing in the scheme which would be considered to help the industries in carrying on their operations on day to day basis. When financial crisis is faced by some business, pumping in of fresh capital is required to help the business to tide over such financial crisis. The financial help, in this regard has, therefore, got to be considered as having an en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... support the appellant s view wherein it was held that excise duty payable on closing stock did not form part of the valuation of closing stock. Following the above decisions, the Madras High Court in the case of CIT vs. Ashok Leyland Ltd. [2007] 294 ITR 380 held that while calculating valuation of closing stock customs and excise duty component had to be excluded . The court further held that customs and excise duty were to be allowed u/s. 43B which were paid on goods manufactured though lying in stock . The Bombay High Court in the case of Cartini India Ltd vs. ACIT Ors (2007) 291 ITR 355 supported the above view, wherein it was held that as far as exclusion of excise duty from closing stock is concerned, excise duty could not form part of the closing stock as the payment was not debited to the P L a/c . The court further observed that if the amount was treated as the part of the closing stock then it should have been allowed for deduction u/s. 43B The Hon'ble ITAT, Allahabad Bench in the case of Shyam Biri Works Ld vs. ACIT (2006) 108 ITD 489 held that Excise duty is payable either at the point of time of manufacture or at the time of removal of such manufacture ..... X X X X Extracts X X X X X X X X Extracts X X X X
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