TMI Blog2017 (7) TMI 657X X X X Extracts X X X X X X X X Extracts X X X X ..... ecific defect pointed out by the AO, the ad hoc addition of ₹ 10 lacs cannot be sustained in eye of law. The revenue’s ground no. 2 is thus dismissed. Addition of foreign travel expenses - Held that:- 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 justified”. Where the assessee has given adequate supportive documentation in support of the foreign travel in terms of bills and tour report containing travel dates, purpose etc, we don’t see any justifiable reason to sustain the ad hoc addition on account of foreign travel expenses. It is not the case of the Revenue that some non-employees or relatives of the directors, etc visited overseas. Further, the necessity of foreign travel is a business decision which should be best left to the assessee company unless there are some substantial corroborative evidence to prove otherwise Addition of “Motor car expenses" - Held that:- No specific discrepancy has been pointed by the AO in the bills/vouchers submitted by the assessee. It is not the position of the Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench in respect of whether CESTAT order has been pronounced or not since the date of passing of order by the Coordinate Bench in August 2016. Once the CESAT order is pronounced, the nature of implications as well as the years involved would be clear and the Revenue as well as the assessee would be in a better position to put foreword their respective contentions. 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 of assessee is allowed for statistical purposes. Disallowance on account of difference in the rate of interest - Held that:- 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 affa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 96-97. Ground allowed for statistical purposes. Disallowance on account of interest on deposits with RSEB - Held that:- AO has stated clearly in his remand report 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.” Once there is a clear finding of fact given by AO that no interest was payable by JVVNL or receivable by the assessee for the year under consideration and ld CIT(A) has also taken cognizance of the same, we are unable to understand what prejudice is caused to the Revenue. The provision for payment of interest by State Electricity Boards on security deposits of the customers was inserted by the Electricity Act, 2003 and interest is being received by the appellant from JVVNL, w.e.f 13.08.2004. In absence of any specific provision in the Electricity Act, 2003 which governs the terms of arrangement between the assessee and JVVNL, the imputed interest cannot be said to have accrued to the assessee company. We accordingly donot find any infirmity in the order of ld CIT(A) in deleting the disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,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 ₹ 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 ₹ 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 ₹ 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 years. He has further erred in confirming the addition even when the AO in 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. 8. The Ld. CIT(A) has erred on facts and in law in confirming the disallowance of ₹ 2,71,000/- made by AO on account of difference in the rate of interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Alwar has erred in law as well as on the facts and circumstances of the case in restricting the disallowance of ₹ 20,00,000/- to ₹ 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 ₹ 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 ₹ 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 27/11/1998 and the assessment proceedings were completed and order u/s 143(3) was thereafter passed on 31/01/2001. 3. Ground No. 1 of the assessee s appeal as well as the revenue s appeal is against the order of ld CIT(A) in confirming the ad hoc trading addition of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 872/-per MT as against last year average purchase price of ₹ 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 ₹ 2.87 per KWH in last year to ₹ 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 report that the decrease in sale rate of caustic soda and increase in the power cost and raw material cost is verified as submitted by the assessee. 4. The ld CIT(A) after taking into consideration the appellant s subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ravelling 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 ₹ 33,55,590/- under the head conveyance expenses and ₹ 33,39,722/- under the head travelling expenses. The assessee has failed to produce vouchers exceeding ₹ 10,000/- for verification. Accordingly, A.O. made disallowance of ₹ 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 examined the vouchers for travelling expenses on test-check basis in the course of remand proceedings and has not pointed out any defects in the same. 9. Now ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 ₹ 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 justified . Where the assessee has given adequate supportive documentation in support of the foreign travel i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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 ₹ 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 ₹ 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 had produced details of parties from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 indisputable channe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 exami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have given 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 presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material available on the record. Where the AO has 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 ₹ 70,000/- out of total disallowance of ₹ 5,00,000/- and confirming disallowance of ₹ 70,000/- out of the advertisement and publicity expenses. The assessee has debited a sum of ₹ 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 ₹ 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- on account of alleged receipt of on- money as income of the assessee on the basis of custom and Central Excise 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 ₹ 533.24 lacs and ₹ 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 ₹ 4,24,27,000/-. 3. Addition of ₹ 4,24,27,000/- is not legally sustain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that there was no such case of under valuation booked against M/s Modi Alkalies and Chemicals Limited, SP-460, M.I.A., Alwar regarding financial year 1997-98 and 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the nature of implications as well as the years involved would be clear and the Revenue as well as the assessee would be in a better position to put foreword their respective contentions. 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 ₹ 2,71,000/- made by the Assessing Officer on account of difference in the rate of interest. The assessee has deposited a sum of ₹ 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 ₹ 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 outse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce, disallowance confirmed by CIT(A) is unjustified and be deleted. At the outset, the ld CIT DR has vehemently supported the orders of the lower authorities. 44. We have heard the rival contentions of both the parties 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te provided to the employees and recovered from same has not been considered in Form no. 16 issued to them. In view of the above facts, the addition of ₹ 20 lacs made by the AO is uncalled for and be deleted. The AO in his remand report stated that 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 ₹ 20,00,000/- to ₹ 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 thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore do not agree with the findings of the ld CIT(A) in this regard. The Ground no. 9 of assessee s appeal is allowed and ground no. 7 of revenue s appeal is dismissed. 47. The ground No. 10 of the assessee s appeal is against confirming the ad hoc disallowance of ₹ 25,00,000/- 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 ₹ 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 inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observation relates to the current year. However, in the course of remand proceedings, sufficient evidence could not be produced before the AO on this issue. Accordingly, AO has made adverse remarks on this issue in the report. The appellant has in the cross reply failed to file any further evidence on this issue and has merely reiterated the submissions filed earlier. In view of these facts, the ld. CIT(A) held that appellant has failed to discharge the duty which lay upon him and confirm the addition of ₹ 25 lacs made by the AO on this ground. 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 ₹ 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 disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest on the security deposit. In fact prior to introduction of the Electricity Act 2003 there was no provision for payment of the interest on security deposit by the Electricity companies. Section 47(4) of the Electricity Act 2003 only provided that the Electricity company would pay the interest to the consumers on the security deposit taken by it. Thereafter the JVVNL for the first time made orders for payment of interest on the security deposit w.e.f. 13-08-2004 @ 6% p.a. Copy of the relevant document in this respect are at P.B.254-259A. From these documents, it is evident that during the year under consideration, no interest is payable by the electricity company on the security deposit. Accordingly the addition of ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et. The AO observed that in assessment proceedings, 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 ₹ 50 Lacs. During the course of remand proceedings, the A.R. has furnished store ledger and submitted his reply which is as under: - 1. The assessee has shown the valuation of the stores and spares at ₹ 498.77 lacs as on 31-03-1998 as per 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 ₹ 50 lacs. 2. We may point out that in assessment proceeding the assessee vide letter dated 23-10- 2010 explained that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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