TMI Blog2017 (3) TMI 202X X X X Extracts X X X X X X X X Extracts X X X X ..... was not allowed to rebut the finding of the Inspector. In view of this factual aspect are of the opinion that the order of the ld.CIT(A) deserves to be set aside. Accordingly, we set aside the order of the ld.CIT(A) and direct the AO to allow depreciation as prayed by the assessee. - Decided in favour of assessee Addition on account of commission and brokerage charges under the head prior period expenses - Held that:- We find merit in the argument of the ld. AR that part of the expenses incurred pertaining to next year and were not claimed in that year but separated and shown under the head prepaid expenses as on 31.3.2006” which were reversed in the financial year 2006-07 and charged to the profit and loss account under the head prior period expenses. The ld. AR vehemently pointed out that these in fact are not prior period expenses but the expenses which related to the current year but incurred in the previous year. We find from the facts before us that the assessee has incurred and paid commission and brokerage expenses which were rightly accounted for by the assessee by debiting partly in the financial year 2005-06 and showing the balance under the head prepaid expenses whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see Prior period expenses disallowance - Foreign Travel liability was ascertained and stood incurred during the Financial Year 2007-08 - Held that:- It is clear from the orders of authorities below that the expenses were incurred and charged by the assessee to the profit and loss account as the amounts were settled during the year in the case of advertisement expense, foreign travel expenses, repair and maintenance, franchisee. We find that these expenses could not be charged to the profit and loss account as the bills were not settled due to dispute and finally due to interference of higher authorities of the assessee, the bills were settled during the year which in our opinion were rightly charged to profit and loss account as the final quantification of the amount of expenses took place during the year. In view of these facts, we are of the considered view that the order of the ld.CIT(A) was not correct and is set aside and accordingly and we direct the AO to allow the expenses as pertaining to current year by deleting the disallowance.- Decided in favour of assessee - ITA NO.507/Mum/2013, ITA NO.1157/Mum/2013, ITA NO.7098/Mum/2013, ITA NO.813/Mum/2014 - - - Dated:- 28-2-20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The AO also issued noticed u/s 133(6) to these parties. The ld. AR of the assessee responded to the notice by submitting that within one week it was not possible to produce confirmations from these parties. However, the copy of invoices, PAN was furnished before the AO. The AO ,after considering the reply of the assessee, came to the conclusion that the assessee made bogus purchases from these parties for the reasons that the notices issued u/s 133(6) were returned unserved and income tax inspector after visiting the given addresses reported back that these parties were not available at the given addresses, non filing of no confirmations from these suppliers and thus, the assessee has failed to discharge onus cast upon it and finally added back the depreciation of ₹ 14,35,200/-. 4. In the appellate proceedings, the FAA dismissed the appeal of the assessee by observing and holding as under : 4.2 I have perused the facts in this case. After issuing notices u/s 133(6) and after deputing the Inspector for spot verifications, the AO asked the appellant to file confirmations. In the circumstances, the appellant cannot now take the plea that natural justice has been violated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities below and the case law relied upon by the assessee. We find that the assessee has purchased software from two parties during the year on which the assessee claimed depreciation at the rate of 30% for the reasons that the assets were put to use for less than 180 days and the payments for the purchases of softwares were made by account payee cheques and the details thereof were filed before the AO along with the invoices, PAN and bank statements. It has been submitted before the AO that within a week confirmations from these parties could not be supplied as the period was too short and also Inspector deputed by the AO for verification could not be done as these parties were not available at the given addresses and notices issued u/s 133(6) also returned back unserved. Considering all these factual aspects of the matter, we are of the opinion that the assessee has discharged all the onus cast upon it by filing necessary details such as copy of invoices, bank details and payment through cheques including PAN before the lower authorities and the AO thereafter without carrying out any extensive verification came to the conclusion that the purchases were bogus. Moreover, the report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brokerage made through Suyash International in the previous year 2005-06 of ₹ 27,00,000/- out of which ₹ 21,64,800/- pertains to the current year i.e. financial year 2006-07 and at the end of the year was shown in the balance sheet as on 31.3.2006 under the head prepaid expenses and claimed the same in the current year as admissible revenue expenses on account of commission and brokerage. However, the AO brushed aside the submissions of the ld.AR citing various reasons that no bills and vouchers were produced and only general vouchers as on 31.3.2006 were produced and consequently added the same to the total income of the assessee as period period expenses. Aggrieved assessee filed appeal before the FAA who vide para 6.2 of the appellate order dismissed the appeal of the assessee by observing and holding as under: 6.2 I have perused the documentary evidence relied upon by the appellant in is paper book. The invoice of Suyash International is dated 15.10.2005, relating to previous year 2005-06. The payment has also, been made in FY 2005-06. Therefore, I am in agreement with the AO, there is no nexus between the prepaid expenses and pervious year 2006-07. In the cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iple of accountancy 12. During the course of assessment proceedings, the AO noticed that the assessee had advanced loan of ₹ 5.50 crores to its 100% subsidiary company M/s Dorian Leasing and Infotech Pvt Ltd in financial year 2005-06. The said loan was used in the current financial year to purchase the immovable property at Malad (W), Mumbai-64 which was leased out by the subsidiary company to assessee for annual rent of ₹ 95,23,800/- and the assessee company received interest of ₹ 59,20,361/- from the subsidiary company during the current year on the said loan. The assessee company has also paid interest to the tune of ₹ 26.66 lacs during the financial year 2006-07 on the loan of ₹ 5.51 crores taken from the banks against the mortgage of the property. The AO vide order sheet entry dated 31.8.2009 called upon the assessee to explain the transactions which was responded and replied by the assessee vide letter dated 24.11.2009 by submitting that the premises in which the office of the assessee was located was owned by the subsidiary company which was owned by M/s Raheja Group prior to its acquisition by the assessee. The said Raheja Group transferr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant and that the lease rent paid by the appellant was excessive. It is also not in dispute that the premise was not let out by the subsidiary company to the appellant. It is seen that there are 2 independent transactions which are done at arm's length and lease payments are based on the user of the property and interest received based on Market rate of interest on amount of advance. Merely because, the subsidiary has NIL taxable income, after claiming deduction u/s. 24. It does not mean that the transaction was sham, since the factual position has not been disputed by the AO. I find that there is valid lease agreement between the appellant and the subsidiary company. The interest on loan was received at market rate by the appellant company and the lease rent is also paid on the basis of Leave and Licence agreement prevailing at market rates. Therefore, the transactions cannot be recorded as sham or void. Accordingly, the disallowance of lease rental amounting to ₹ 36,03,439/- is without any basis and not in accordance with law, accordingly same is therefore deleted 2.1 As the facts and the issue, in this year, remains the same, I am inclined to follow the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent financial years for the reasons that training/instructions would be imparted in the those financial years. The AO observed that the course fees were received by the assessee as per the agreement entered by and between the assessee and the franchisees. The responsibility of the assessee was to provide course material and update the same from time to time and the expenses on the course material were incurred in the beginning of the courses. Whereas the assessee had an irrevocable right on the fees received. Accordingly came to the conclusion that the fees received by the assessee company should have been offered for taxation in the current year by rejecting the contentions raised by the assessee that recognition of fees in the current year would violate matching principle of accountancy by calculating ₹ 5,42,65,010/- as short fall in the fees credited to profit and loss account during the year in the following manner: From the submission filed, the revenue short-offered by the as company on account of students fees is worked out as under: I. Students fees credited to P/L A/c Rs.14,29,44,896 II. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nancial Year 2007-08. 2. The Learned CIT CA) erred in not adjudicating the claim of prior period expenses of ₹ 3,06,387/- incurred on advertising and marketing. 3. The Learned CIT CA) erred in law and on facts and in the circumstances of the case in confirming the disallowance of prior period expenses of ₹ 1,38,537/- in respect of repair and maintenance on the ground that the liability arose in earlier years and was known to the appellant and therefore it could make provision for the same. 4. The Learned CIT CA) erred in law and on facts and in the circumstances of the case in confirming the disallowance of ₹ 4,09,175/- in respect of advertisement and marketing expenses holding these expenses to have been incurred in financial year 2005-06, 2006-07 and 2007-08 without appreciating the fact that these expenses were debited to the franchises as recoverable from them and during the previous year relevant to this assessment years it was agreed by the appellant that the franchises need not reimburse the amount of ₹ 4,09,175/-. Hence deduction of ₹ 4,09,175/- is allowable this year. 5. The Learned CIT CA) erred in law and on facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for adjudication by the Bench. The ld. DR while strongly opposing the admission of additional ground for the reasons that the assessee has neither raised this issue before the AO nor before the ld. CIT(A) and also not before the Tribunal at the time of filing of the appeal. 21. We have heard the rival contentions on the admission of additional ground raised by the assessee. On perusal of the material placed before the Bench, we find merit in the submission of the ld.AR that the issue was cropped out of the judgment of the Hon ble Supreme Court and the assessee has every right to raise the issue by way of additional ground. Accordingly, we are inclined to admit the additional ground for adjudication and restore the same to the file of AO to decide de-novo as per fact and law by affording the opportunity of being heard to the assessee. Additional ground taken by the assessee is allowed. 22. The issue raised by the assessee in the original grounds of appeal no.1 is against the confirmation of disallowance of prior period expenses of ₹ 1,06,307/- on the ground that these pertains to financial year 2007-08 in respect of Foreign Travel on the ground that the liability was asc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the year and therefore incurred during the year, therefore same are allowable as deduction. However, expenses relating to repairs maintenance amounting to ₹ 1,38,537/-, I find that these were raised in earlier years but the appellant disputed the liability. Hence, same were debited in the current year on settlement of dispute. However. since the liability was arose earlier and it was known to the appellant. Therefore, the appellant could have made provision for the same. Hence, disallowance of such expenditure amounting to ₹ 1,38,537/- is sustained. As regards foreign travel expenses of ₹ 1,06,307/ pertaining to FY. 07-08, of which liability was ascertained and same were stands incurred during the same period. Hence, same cannot be allowed as prior period expenses. Therefore disallowance made of such amount is upheld. As regards amount of ₹ 4,09,175/- relating, to credit notes in respect of franchisee, I find that these expenditure have been incurred on advertisement and marketing during the FY. 05-06, 06-07 and 07-08. Hence, same have been rightly disallowed by the AO. Accordingly disallowance made by the AO is sustained. Similarly, expenditure on bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch expenses by the franchisees on the ground that they were not doing good business and hence the expenses could not be recovered in full and therefore the amount was charged to the profit and loss account as being incurred wholly and exclusively for the purpose of business as the same was crystallized during the year. Qua the expenses of business partnership amounting to ₹ 8,57,781/-, the assessee incurred these expenses on advertisement and part of which was to be borne by some franchisees. However, when the franchisees failed to meet requirement, the assessee treated these expenses as incurred wholly and exclusively for the purpose of business and charged to profit and loss account during the year accordingly. Finally, the ld. AR prayed before the Bench that all the expenses were incurred wholly and exclusively for the purpose of business and were either crystallized during the year or finally settled during the year and thus pertained to the current year and not to the years to which to which the bills of these expenses were pertained. 25 On the other hand, the ld.DR heavily relied on the orders of authorities below. 26. Heard both the parties and perused the releva ..... X X X X Extracts X X X X X X X X Extracts X X X X
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