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TMI Blog2017 (11) TMI 847X X X X Extracts X X X X X X X X Extracts X X X X ..... b) Disallowance of Husk Purchases U/S 37 of the Income Tax Act, 1961 amounting to Rs. 7,77,757/-. c) Additions of Sundry Creditors - Disallowance of Liability U/S 41(1) of the Income Tax Act, 1961 amounting to Rs. 7,68,453/. d) Disallowance of Technical Consultancy Fees paid U/S 37(1) of the Income Tax Act, 1961 amounting to Rs. 10,50,000/-. e) Disallowance of Interest U/S 14(A) of the IT Act, 1961 amounting to Rs. 79,53,780/-." 2. At the time of hearing the ld. AR of the assessee has stated at bar that the assessee does not press ground no. 1(a)(b) & (c) and the same may be dismissed as not pressed. The ld. DR has not objected if the ground no. 1(a)(b) & (c) of the assessee's appeal are dismissed as not pressed. Accordingly the ground no. 1(a)(b) & (c) of the assessee's appeal are dismissed being not pressed. 3. Ground no. 1(d) is regarding disallowance of technical consultancy fee. During the assessment proceedings the AO found from the Profit and Loss account that Shri S.S. Mallikarjun, S/o Sri Shamanur Shivashankarappa has received Rs. 42 lakhs as payment towards providing technical consultancy to the assessee company. The AO asked the assessee to explain the bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any technical service was actually rendered by Sri S.S. Mallikarjun to the assessee. Therefore in the absence of any supporting material of actual service rendered to the assessee the payment is not allowable u/s. 37(1) being the expenditure not laid out wholly and exclusively for the purpose of business of the assessee. 6. We have considered the rival submissions as well as relevant material on record. The assessee has claimed that shri S.S. Mallikarjun is the chief promoter of distilleries and because of his dynamic support the assessee could expand its production and technical upgradation. The assessee explained the competence of shri S.S. Mallikarjun in technical and industrial field and particularly in distilleries, sugar, rice industry management in latest technology. Having accepted this contention of the assessee the question remains whether shri S.S. Mallikarjun has rendered any service apart from his capacity of Managing Director of the assessee company. The assessee has produced certain certificates in this regard showing his knowledge and undergoing training and technical qualifications. However, no documents or material has been produced by the assessee to show which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore this was the reason for making the investment. Similar contention was raised in respect of Universal Bottles Pvt. Ltd. The CIT(A) was not impressed with the explanation and contention of the assessee and upheld the disallowance made by the AO. 8. Before us the ld. AR of the assessee has reiterated its contention as raised before the authorities below and submitted that the investment was made for commercial expediency and not for earning the dividend income. She has further submitted that increase in the overdraft / cash credit limit during the year is only Rs. 2,79,18,345/-. Therefore the disallowance if any on account of interest u/s. 14A can be only in respect of the increase in the overdraft / cash credit limit during the year. She has further submitted that there is a corresponding increase in the current assets from 18.64 crores on 31.03.2006 to Rs. 33.07 crores as on 31.03.2007. Thus there is an increase of Rs. 14.43 crores in the current assets. The AO has considered the entire overdraft facility as utilized for investment in shares whereas the same was utilized for improvement of current assets only. Thus the ld. AR has submitted that the borrowed fund was not uti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on detailed verification made by the Assessing Officer with regard to the issues of Payment made to husk suppliers, Sundry Creditors added u/s 41(1) of the Act & Payment made to technical consultancy. 5. For these and other grounds that may be urged upon at the time of hearing. 6. The appellant craves leave to add, alter, amend any of the grounds." 11. Ground nos. 1 and 2 are general in nature and does not require any specific adjudication. 12. Ground no. 3 is regarding reworking of grain price by adopting the average rate of Rs. 950 per quintal. The AO has stated in the assessment order that the assessee has installed a grain plant during the year under consideration for production of spirit from grain and cereals. The AO noted from the ledger account that the assessee has purchased jowar flour of Rs. 7,64,01,000/- at the rate of Rs. 975/- per quintal during the year. The assessee produced copy of bills issued by M/s. Kalleshwara Bio-products, Davanagere. The AO concluded that the assessee paid excess amount of Rs. 2,93,85,000/- to M/s. Kalleshwara Bio-products, Davanagere for purchase of jowar flour. The AO took the excess rate of Rs. 375/- per quintal to work out the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cordingly, having considered the facts and circumstances of the case we are of the view that the mean rate which is minimum + maximum / 2 of all three APMCs to be considered for working out the average market price of jowar during the year under consideration. The CIT(A) has applied the rates as under. Sl.No. Area Financial Year Minimum (Rs.) Maximum (Rs.) 1 APMC, Bagalkot (2006-07) 600.00 1100.00 2 APMC, Mahalingapur (2006-07) 750.00 1100.00 3 APMC, Davangere (2006-07) 400.00 850.00 Accordingly, the average rate ought be computed by considering the minimum and maximum of each of the APMCs as under. 1. APMC Bagalkot - Rs. 850/- per quintal per quintal 2. APMC Mahalingapur - Rs. 925/- per quintal 3. APMC, Davanagere - Rs. 625/- per quintal The AO is directed to apply the rate of Rs. 800/- per quintal. 15. Ground no. 4 is regarding disallowance made on account of husk purchase. The AO found that the assessee has debited Rs. 1,21,25,517/- in the Profit and Loss account on account of husk purchase as against Rs. 46,25,517/- shown in the last year under the head power and fuel. From the ledger accounts of the parties the AO noted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee has shown the purchase of Rs. 46,25,200/- whereas in this year the assessee has debited Rs. 1,21,25,527/-. Therefore the AO found that there is an excess of purchase Rs. 74,67,244/- during the year under consideration. We find that in respect of examining the actual purchases and consumption during the year under consideration the AO has made the disallowance only by comparing the expenditure on this account in the earlier year. Before the CIT(A) the assessee furnished the monthwise details of steam generated as under: Month Steam Generated (MTs) April,06 3061.000 May,06 9932.000 June,06 8401.000 July,06 8138.000 Aug,06 9732.000 Sept,06 6359.000 Oct,06 10387.000 Nov,06 9656.000 Dec,06 10166.000 Jan,07 8149.000 Feb,07 8919.000 Mar,07 10394.000 Total 103294.000 These details have not been disputed by the revenue before us. Therefore the total husk required for generation of this quantity of steam was computed at 25,379 MTs against which the assessee has shown the purchase of 10,312.75 MTs of husk during the year and the remaining fuel was used as biogas. The CIT(A) after considering all these facts has restricted the disallowance to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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