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TMI Blog2017 (7) TMI 657X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. The Ld. CIT(A) has erred on facts and in law in confirming the disallowance of Rs. 75,000/- out of motor car running expenses. He has further erred in confirming the disallowance even when the AO in the remand report has accepted that the expenses are supported by bills and vouchers including the hand- made vouchers. 4. The Ld. CIT(A) has erred on facts and in law in confirming the addition of Rs. 78,00,000/- u/s 68 by treating the share application money pending allotment as unexplained. 5. The Ld. CIT(A) has erred on facts and in law in confirming the ad hoc disallowance of Rs. 3,00,000/- out of repair and maintenance expenses. He has further erred in confirming the addition even when the AO in remand proceedings has verified the bills/ vouchers and has not found any defect. 6. The Ld. CIT(A) has erred on facts and in law in confirming the disallowance of Rs. 70,000/- out of advertisement and publicity expenses. 7. The Ld. CIT(A) has erred on facts and in law in confirming the addition of Rs. 4,24,27,000/- on account of alleged receipt of own money as income of the assessee on the basis of Custom and Central Excise Order passed against the assessee in earlier yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Commissioner of Income Tax (Appeals), Alwar has erred in law as well as on the facts and circumstances of the case in restricting the disallowance of Rs. 5,00,000/- to Rs. 70,000/- made by the AO on a/c of advertisement & publicity expenses. 7. That the Commissioner of Income Tax (Appeals), Alwar has erred in law as well as on the facts and circumstances of the case in restricting the disallowance of Rs. 20,00,000/- to Rs. 2,00,000/- made by the AO on a/c of perquisites to employees. 8. That the Commissioner of Income Tax (Appeals), Alwar has erred in law as well as on the facts and circumstances of the case in deleting the disallowance of Rs. 60,00,000/- made by the AO on a/c of interest on deposits with RSEB. 9. That the Commissioner of Income Tax (Appeals), Alwar has erred in law as well as on the facts and circumstances of the case in deleting the disallowance of Rs. 50,00,000/- made by the AO on a/c of valuation of Stores & Spares." 2. The brief facts of the case is that the assessee company is engaged in the manufacturing and sale of various chemicals like caustic soda lime, caustic soda flakes, CSS SBB etc. It filed the return declaring Nil taxable income on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ell as last year is at P.B.59. In assessment proceeding, the AO never required the assessee to produce any detail in support of the decline in the sale rate as compared to the last year but summarily observed that in the assessment order that vouchers were not produced for verification. The sample bills for both the years in support of the decline in sale price as compared to the last years are produced. Therefore the decline in the sale rate is fully verifiable. ii. Increase in the cost of raw material used in production:- The main raw material used in the production is Salt. The average purchase price of the salt has increased to Rs. 872/-per MT as against last year average purchase price of Rs. 792/- per MT. Statement indicating working of the average purchase rate of current year as well as last year is at P.B.60-61. iii. Increase in the cost of power:- During the year the cost of the power has been increased in terms of unit rate. The cost of the power has increased from average rate of power of Rs. 2.87 per KWH in last year to Rs. 3.22 per KWH this year. This fact is also evident from the Form A of the balance sheet. (P.B.62- 63) The AO finally stated in his remand repo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst deleting the disallowance of Rs. 10,00,000/- made by the Assessing Officer on account of travelling expenses. The assessee debited a sum of Rs. 1,10,88,388/- under the head travelling expenses. In assessment proceeding, the assessee filed the details of the travelling expenses. The AO observed that the expenses under this head includes sum of Rs. 33,55,590/- under the head conveyance expenses and Rs. 33,39,722/- under the head travelling expenses. The assessee has failed to produce vouchers exceeding Rs. 10,000/- for verification. Accordingly, A.O. made disallowance of Rs. 10,00,000/- on estimation basis for want of adequate evidences. During the course of remand proceedings, the A.R. has produced Travelling expenses bills, and vouchers towards the claim made for deletion of travelling expenses and submitted its reply to the AO. The AO in his remand report stated that "Travelling expenses and conveyance expenses as claimed by the assessee has been checked on test basis with the supporting vouchers, bills as submitted/produced by the assessee." 8. The ld CIT(A) after taking into consideration the remand report deleted the disallowance by holding that the Assessing Officer has e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oreign travel expenses and vouchers of tour reports submitted by assessee held that the visit by CEO is for other projects and in some case visit for business purpose are not justified. The Ld. CIT(A) by holding that there are certain deficiencies which were noticed by the AO in the course of examination of bills and vouchers, reports, etc. at the stage of remand proceedings, confirmed the disallowance to Rs. 2.5 lacs. It is submitted that both the lower authorities has not specified any visit/expenses which is not for business purpose and thus the disallowance so confirmed is unjustified and be deleted. 15. At the outset, the ld CIT DR has vehemently supported the order of the Assessing Officer. 16. We have heard the rival contentions of both the parties and perused the material available on the record. The assessee has submitted details of foreign travel and tour reports to the AO in the original proceedings as well as during the course of remand proceedings. Once the adequate material evidence is on record, the observation of the AO doesn't inspire confidence at all where he says that "visits of the CEO for some other projects and business purposes of some visits are not justi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eard the rival contentions of both the parties and perused the material available on the record. No specific discrepancy has been pointed by the AO in the bills/vouchers submitted by the assessee. It is not the position of the Revenue that the expenses claimed are bogus in nature or not incurred for the purposes of the business. The adhoc disallowance cannot therefore be sustained in eye of law. Ground no. 3 of the assessee's appeal is allowed and ground no. 4 of revenue's appeal is dismissed. 22. The 4th ground of the assessee's appeal is against confirming the addition of Rs. 78,00,000/- under section 68 of the Act by treating the share application money pending allotment as unexplained. The AO observed that the assessee has received share application money of Rs. 78,00,000/- during the year and the assessee was asked to file the confirmation of share application money but no such confirmation was filed. Accordingly he treated it as unexplained income of the assessee and made addition of Rs. 78,00,000/- by applying the provisions of section 68. During the course of appellate proceedings, the matter was remanded to the AO and the AO in his remand report stated that "The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee only when the assessee proves three things to the satisfaction of the AO, viz., identity of the creditor, capacity of the creditor and genuineness of the transaction. 26. We know refer to the judgment of Hon'ble Delhi High Court relied upon by the ld AR in the case of CIT vs. Lovely Exports Pvt. Ltd. 299 ITR 268 (Delhi) and SLP against the said decision which was subsequently dismissed by the Hon'ble Supreme Court. The Hon'ble Delhi High Court held that the Tribunal had categorically held that the assessee "has discharged its onus of proving the identity of the share subscribers". Had any suspicion still remained in the mind of AO, he could have initiated "coercive process" but this course of action had not been adopted. The deletion of the additions was justified. Further, relevant observations of the Hon'ble High Court are as under: "18: In this analysis, a distillation of the precedents yields the following propositions of law in the context of section 68 of the Income-tax Act. The assessee has to prima facie prove (1) the identity of the creditor/ subscriber; (2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of Shree Barkha Synthetics Ltd (supra) held that "it was not denied that all the shareholder/ share applicants were genuinely existing persons. It was also not denied that each of them was an income tax assessee and copies of the return of their income were also placed before the A.O. There was no presumption that the assessee was the benami owner of the investment made by the existing persons. The Tribunal was justified in deleting the addition. 30. On going through the above referred judgments of Hon'ble Supreme Court and the Hon'ble High Courts, it is explicit that the initial onus under section 68 of the Act can be said to have been discharged only when the assessee proves existence/identity of the subscriber, capacity/creditworthiness of the subscriber and the genuineness of transaction to the satisfaction of the AO. All the three constituents are required to be cumulatively satisfied. If one or more of them is absent, then the AO can lawfully make addition. Once the initial onus is satisfied by the assessee, the onus shifts on the Revenue and where it is not satisfied with the assessee's explanation, it can then carry out further enquiry in the matter. 31. Now let's exam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en a careful consideration to the matter. It is noted that the assessee was carrying on business for past many years and during the year under consideration, share application money has been received towards subscription of the share capital of the assessee company. The share application money has been received from the existing promoter group of companies and not from any third person/entity. The promoter group of companies had invested in the share capital of the assessee company in the past and their credit worthiness is well established and accepted by the Revenue in the past. It is not the case of the Revenue that the shareholders were benamidars or fictitious persons or that any part of the share capital represented the company's own income from undisclosed sources. Further, the share application money has been received through normal banking channels and subsequently shares have been allotted. Once the identity and credit worthiness of the subscribers is established and genuineness of transaction is not doubted, mere non-filing of the confirmation cannot be held sufficient enough to attract the provisions of section 68 of the Act. In the peculiar facts of the present case, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verified the vouchers/bills submitted by the assessee on test check basis and has not found any defect therein, we see no justifiable reason to sustain the disallowance. The ground no. 5 of assessee's appeal is allowed and ground no. 5 of revenue's appeal is dismissed. 35. The 6th ground of the assessee's appeal and 6th ground of the revenue's appeal are against restricting the advertisement and publicity expenses to Rs. 70,000/- out of total disallowance of Rs. 5,00,000/- and confirming disallowance of Rs. 70,000/- out of the advertisement and publicity expenses. The assessee has debited a sum of Rs. 45,93,941/- under the head rent, rates, taxes and advertisement and publicity. The AO observed that the vouchers produced by the assessee in assessment proceeding were not found fully verifiable. Accordingly, A.O. made lump sum disallowance of Rs. 5 lacs. During the course of remand proceedings, the A.R. has produced advertising and publicity expenses bills and vouchers and submitted before the AO that the expenditure on advertisement and publicity is mainly in respect of publication in the news paper duly supported by the news paper cutting. Thus the expenses under this head are f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Order passed against the assessee in earlier years. The A.O. observed that in the search conducted by Central Excise Department on 27-08- 1996 and the consequent order passed by Commissioner of Central Excise dated 8-12-1998 it was found that assessee was collecting amount in cash from Customers of liquid chloride over and above the invoice value. This matter has been discussed in A.Y. 1996-97 & 1997-98 and an addition of Rs. 533.24 lacs and Rs. 180.95 lacs was made respectively. During the course of remand proceedings, the A.R. has submitted its reply which is as under: - 1. A.O. has failed to appreciate that the order of the custom and central excise was not final order and no addition could be made on the basis of such an order in the hands of the assessee. 2. A.O. has failed to appreciate that the statement of Shri. Ashok Kumar, an employee of the assessee company, was extracted under duress and the same could not be made the basis of addition of such a huge amount of Rs. 4,24,27,000/-. 3. Addition of Rs. 4,24,27,000/- is not legally sustainable and the same may be deleted. The A.O. observed that in the search conducted by Central Excise Department on 27-08-1996 and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd thereafter, so far". However, it is found that addition has been made in the case of the appellant on the basis of statement of an employee recorded by the Customs and Central Excise Department wherein it was stated that the company is receiving sale consideration from the customers over and above the invoice value in cash. This addition has been made in the hands of the appellant in earlier years as well. Therefore, I hold that the reply received by the AO in the course of remand proceedings does not cover this issue. Further, the appellant has also failed to furnish any material on this issue which could controvert the evidence available on record. Accordingly, I confirm the addition of Rs. 4,24,27,000/- made by the AO under this head." 39. Now the assessee is in appeal before us. The ld. AR of the assessee has submitted that the AO in the remand report has accepted that during the year neither any sale out of books was found nor excise department has made out any case against the assessee. The letter of the Central Excise Department wherein it was stated that there was no such case of under valuation booked against the assessee during the year under consideration was also f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions. Hence, the findings and directions contained in Coordinate Bench decision for AY 1996-97 shall apply mutatis mutandis to the impunged assessment year as well. Hence, ground no. 7 of assessee is allowed for statistical purposes. 43. The 8th ground of the assessee's appeal is against confirming the disallowance of Rs. 2,71,000/- made by the Assessing Officer on account of difference in the rate of interest. The assessee has deposited a sum of Rs. 98.36 lacs with the bank in FDR against the margin money. On these FDR it is receiving interest @9.30%. As against this, the assessee has paid interest @ 14% to 15% on the fixed deposit obtained from public. The AO therefore, observed that the rate of interest payment is higher as compared to the interest received on margin money and therefore he worked out the excess interest paid at Rs. 2,71,000/- and made disallowance of the same. During the course of remand proceedings, the A.R. has submitted its reply as under: - "1. At the outset we may point out that the AO has compared the rate of interest on FDR kept as margin money with the rate of interest paid on the fixed deposit taken from public which is incorrect. This is not the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties and perused the material available on the record. It is not in dispute that the fixed deposits were placed with banks as margin money to avail the facility of bank guarantee which the appellant requires for the purposes of its business. The purpose of fixed deposit was thus not for the purposes of earning interest income but to secure bank guarantee for the purposes of business. At the same time, nothing has been brought on record to the attention of the Bench by either of the parties to determine what kind of irregularities had been revealed by the department of company affairs in matter of interest payment - the basis for sustaining the disallowance by the ld CIT(A). In the interest of justice and fair play, we therefore remand the matter back to the file of the AO to examine the details of enquiry conducted by department of company affairs and how the same is relevant for the transaction under consideration. Ground no. 8 of assessee's appeal is allowed for statistical purposes. 45. Ground No. 9 of the assessee's appeal and ground No. 7 of the revenue's appeal are against restricting the expenses made on account of perquisites to employees to Rs. 2,00,000/- out of total dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has filed TDS return and Form 16 of their employees at Alwar. On our test checks, we have noted perquisite value of car, house accommodation, LTA etc. has been taken into account while calculating the tax of the employees." The Ld. CIT(A) had restricted the disallowance from Rs. 20,00,000/- to Rs. 2,00,000/- by holding that the appellant has filed details in respect of the employees in the course of appellate proceedings and explain that value of these perquisites is duly accounted for in the hands of employees. These details alongwith Form no. 16 of employees was test checked by the AO in the course of remand proceedings. The AO has not given any adverse comments on this issue. At the same time, as the AO has failed to give a finding with regard to the details of perquisites and salary payments to Sh. K. N. Modi, therefore, the ld. CIT(A) held that it would be fair to restrict the disallowance under this head to Rs. 2 lacs. The ld AR of the assessee has submitted that the AO in the remand report has verified the TDS return and Form 16 of all the employees and submitted that the perquisite value has been considered in the hands of the employees. However, CIT(A) witho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the Assessing Officer out of interest payment. The AO observed that the department of Companies Affairs made an inspection u/s 209A. From the report it was revealed that company has either charged lower interest rate or gave interest free loans. This matter was also discussed in A.Y. 1996-97 & 1997-98 wherein also disallowance has been made. He further observed that the assessee has charged interest on margin money @ 9.30% whereas the interest is paid @ 16.82% on interest on term loan, 21.62% on interest on fixed deposits and 14.36% on interest to bank. Considering all these facts he made disallowance of Rs. 25 Lacs. During the course of remand proceedings, the assessee submitted following submission before the AO: 1. The AO observed that the department of Companies Affairs made an inspection u/s 209A. From the report it was revealed that company has either charged lower interest rate or gave interest free loans. This matter was also discussed in A.Y. 1996-97 & 1997-98 wherein also disallowance has been made. He further observed that the assessee has charged interest on margin money @ 9.30% whereas the interest is paid @ 16.82% on interest on term loan, 21 62% on intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... During the course of hearing, the ld AR of the assessee has submitted that the AO in the remand report stated that assessee has produced books of accounts but details of ICD were not produced by the assessee. It is submitted that the interest paid on ICD is only Rs. 13,72,144/-.The ICD are used for purpose of business. There is no fresh ICD. It is coming from last year. The disallowance made in AY 1996-97 was deleted by the Hon'ble ITAT in ITA No.387/JP/1 dated 19.08.2016. The lower authorities have not brought out any evidence on record to show that funds has been utilised for the purpose other than business. Hence, the disallowance confirmed be deleted. The CIT DR has supported the order of the lower authorities. 48. We have heard the rival contentions of both the parties and perused the material available on the record. It is submitted by the ld AR that the interest paid on ICD is only Rs. 13,72,144/- and there is no fresh ICD and it is coming from last year where the disallowance made in AY 1996-97 was deleted by the Hon'ble ITAT in ITA No.387/JP/1 dated 19.08.2016. The matter is set-aside to the file of the AO to examine the above said contention of the assessee and where t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year under consideration, no interest is payable by the electricity company on the security deposit. Accordingly the addition of Rs. 60,00,000/- made by the AO on notional basis is uncalled for and be deleted. The AO thereafter in his remand report has stated that "The assessee has submitted a letter from JVVNL, M.I.A., Alwar bearing No. 2594 that no interest was paid by JVVNL on security amount deposited in F.Y. 1997-98. The same was allowed to be paid by JVVNL w.e.f. 13.08.2004 per annum." The Ld. CIT(A) thereafter deleted the addition made by the Assessing Officer by holding that these facts have been confirmed by the AO in the course of remand proceedings and accordingly, he held that there is no justification in the action of the AO in making an addition of interest income on estimated basis. Therefore, the addition of Rs. 60 lacs made by the AO was deleted. The ld CIT DR has supported the order of the Assessing Officer. At the outset, the ld AR of the assessee has submitted that the provision for payment of interest by State Electricity Boards on security deposits of the customers was inserted by the Electricity Act, 2003. As a result of this provision, interest is being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Schedule G of the printed balance sheet. The AO observed that in assessment proceeding, the assessee was asked to file the details of the valuation of the stores and spares but neither such details were filed nor any vouchers in support of the valuation was filed and therefore he presumed that it is not possible to ascertain the basis of the valuation and genuineness of the same. Accordingly, he made a lump sum addition of Rs. 50 lacs. 2. We may point out that in assessment proceeding the assessee vide letter dated 23-10- 2010 explained that the method of inventory valuation is mentioned at point no.5 of the accounting policy. As per this the assessee is regularly valuing the closing stock of stores and spares at cost. The assessee is maintaining day to day stock register in the computer system and stock is accordingly valued at cost as per the software itself. Sample copy of the stores ledger generated from the computer are placed at P.B. 260-272. From the stores ledger it can be noted that the stores and spares are correctly valued by the system. In A.Y. 1999-2000, the value of the closing stock of stores and spares as on 31/3/1998 has been considered as opening stock of sto ..... X X X X Extracts X X X X X X X X Extracts X X X X
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