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2018 (3) TMI 941

ation there is abnormal increase in the consumption of raw material by 25% than compared with the increase in production of finished goods by 10% - Held that:- On perusal of Schedule 14 (Materials) of the audited accounts (page no. 20) reveals that closing stock of work-in-progress (WIP) as on 31.03.2004 is ₹ 38,192/- and on 31.03.2005 is ₹ 52,907/-. Thus, there is an increase of 39% in the closing stock of WIP. We also note that the value of closing stock of finished goods and WIP has also increased by 29%, therefore, in the light of the aforesaid facts emerging from the audited accounts of the assessee, the factual inference of the AO is incorrect and the basis for estimation itself fails. We also note that the books of account of the assessee has not been rejected by the AO, therefore, the estimation was not warranted. - CIT(A) erred in restricting the disallowance to 1% of raw material consumed. Therefore, in the interest of justice and fair play for both the parties, we set aside the order of Ld. CIT(A) and remand the matter back to the file of AO for de novo adjudication - Decided in favour of assessee for statistical purposes - Disallowance of site expens .....

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re, in the interest of justice relying on the order of Hon’ble Supreme Court in the case of Tin Box Company (2001 (2) TMI 13 - SUPREME Court), we remand this issue to the file of AO for de nove adjudication. - Addition on gifts given - Held that:- We note that assessee has given calendar, diary, bags etc. which are regularly presented to customers, dealers, employees during festival occasion to carry the business smoothly and needs to be considered as business expenditure u/s. 37(1) of the Act. - Allowability of foreign travel expenses - Held that:- We note that in earlier assessment years there has been no disallowance on foreign travel and taking into consideration the rule of consistency and since the AO has made ad hoc disallowance which is an arbitrary exercise of power, we do not subscribe this action of the AO and, therefore, we uphold the order of Ld. CIT(A) and dismiss this ground of appeal of revenue. - Allowability of hotel expenses - Held that:- Director and foreign employees as well as other employees/auditors of the assessee company have been staying in hotels and bills have been annexed with the paper book. So, the contention of the AO cannot be accepted .....

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for assessee did not press this ground citing the reason that claim of tooling either on consumption basis or amortization basis only makes difference as of timing and does not, therefore, makes any impact as such, therefore, the assessee does not want to contest this ground. Consequently, we reverse the order of Ld. CIT(A) and uphold the order of AO on this issue. Revenue s appeal on this issue is allowed. 3. Ground no. 2 of assessee s appeal and ground no. 2 of revenue s appeal are against the order of disallowance/restriction of raw material consumed to 1% of the value of raw material consumed on estimate basis respectively. Briefly stated facts are that the assessee company is a manufacturer and trader of Refractory s. On examination of details filed by the assessee it was noticed by the AO that considering the decrease of ₹ 226.55 lakhs in closing stock, the consumption of raw materials have shown an upward trend of 25% whereas the production of finished products shown an upward trend of 10% only. At the same time he also noted that considering the purchase and opening stock, the closing stock valuation of slide gate items was found less than the opening stock as also i .....

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disallowance to 1% of raw material consumed. Therefore, in the interest of justice and fair play for both the parties, we set aside the order of Ld. CIT(A) and remand the matter back to the file of AO for de novo adjudication and the direct the AO to take into consideration all the factors and not to be swayed away by clause 28(a) annexure 19 to the audited accounts wherein the quantitative details of principal items of good traded was stated to be not readily ascertainable (page 34 of paper book), when the quantity manufactured during the year and the closing stock of the year are discernible from annexure 20 clause 28(b) (page 35 of paper book). With the aforesaid observation, we remand the matter back to the file of the AO to decide this issue afresh after giving adequate opportunity to the assessee. 4. Ground no. 3 of both the assessee s appeal and revenue s appeal are against the order of Ld. CIT(A) on account of disallowance of site expenses-Maintenance and site expensesothers u/s. 40(a)(ia) of the Income-tax Act, 1961 (hereinafter referred to as the Act ) to the extent of labour charges and office rent. Briefly stated facts are that the AO disallowed the site expenses - main .....

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ment by providing sufficient opportunity to the assessee and since no opportunity was given to the assessee at the time of assessment proceedings on the addition/disallowance made, the proper course to be taken is that the matter needs to be remanded back to the AO. In support of this, we rely on the decision of Hon ble Supreme Court (three judges Bench) in Tin Box Company Vs. CIT (2001) 249 ITR 216 (SC) wherein the Hon ble Supreme Court has held as under: It is unnecessary to go into great detail in these matters for there is a statement in the order of the Tribunal, the fact-finding authority, that reads thus : We will straightaway agree with the assessee s submission that the Income-tax Officer had not given to the assessee proper opportunity of being heard. That the assessee could have placed evidence before the first appellate authority or before the Tribunal is really of no consequence for it is the assessment order that counts. That order must be made after the assessee has been given a reasonable opportunity of setting out his case. We, therefore, do not agree with the Tribunal and the High Court that it was not necessary to set aside the order of assessment and remand the .....

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ction details in respect of site expenses - maintenance/others. On the other hand the appellant referring to questionnaire issued by AO submitted that the AO had not called for the details in respect of the above mentioned expenses. The appellant while submitting the details of the above expenses stated that it's employee's incurred expenses at the customer site and the same are charged to site expenses and hence there is no requirement to deduct tax. I have considered the submissions of the appellant. The AO appears to be not justified to make disallowance u/s. 40(a) (ia) without calling for the details and examining the nature of such expenses debited. However, the perusal of details of nature of expenses submitted shows that in respect of 'labour charges" (through contractors) and 'office rent', the appellant should have made tax deductions. As such, I direct the AO to restrict the disallowance u/s 40(a)(ia) only to these two items of expenses and delete the disallowances/additions made in respect of other expenses. The appellant gets a partial relief on this ground. Aggrieved, revenue and assessee both are in appeal before us. 5.1. We have heard rival s .....

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ade the addition which renders the order bad in law for non-application of mind, therefore, in the interest of justice relying on the order of Hon ble Supreme Court in the case of Tin Box Company (cited supra), we remand this issue to the file of AO for de nove adjudication. This ground of appeal of assessee is allowed for statistical purposes. 7. Ground no. 5 of revenue s appeal is against the order of Ld. CIT(A) in allowing gifts of ₹ 5 lacs. Brief facts of the issue are that the AO made the disallowance of ₹ 5 lacs out of ₹ 16,89,072/- incurred on gifts and presents on the contention that the assessee neither categorized the persons to whom gifts were presented nor their correlation with business activity. On appeal, the Ld. CIT(A) while deleting the ad hoc disallowance made by the AO has observed as under: I have carefully examined the submissions of the appellant including case laws relied upon. I find there is force in appellant s arguments. The AO has made on ad hoc addition without segregating such items. As such there is no basis for such ad hoc disallowance. The appellant furnished details of gifts and presents categorizing the persons to whom gifts were .....

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sidered the submissions and case laws relied on by the appellant. I am of the view that the A.O could have categorisd such expenditure and accordingly made disallowance. The ad-hoc disallowance of ₹ 20,00,000/- made is not justifiable as there is no basis for such ad-hoc disallowance. Hence I direct the A.O to delete the addition. As far as the second addition is concerned, the A.O made this addition on the ground that the expenditure incurred is not exclusively laid out for the purpose of business. On the other hand the appellant submitted that the expenditure incurred for the purpose of acquisition of refractory business and hence for the purpose of business. The appellant relied on certain case laws in support of its arguments. I have perused the assessment order. I find myself not in agreement with the reasoning given by the A.O for making such disallowance. As argued, the appellant is placed in a better position to decide about incurring particular expenditure in a particular way. It is to be seen whether the expenditure incurred is genuine and incurred in the course and/or for the purpose of business. In view of the facts and keeping in view the judicial decisions on th .....

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f the appellant. I have also examined the facts of the case and the reasoning given by the AO. As I held earlier in respect of other ad-hoc additions, I am not in agreement with the A.O for making an ad-hoc addition in respect of hotel expenses also. The AO should have made specific additions after categorizing such expenses where discrepancies noticed." In view of the facts of the case and also keeping in view the case laws cited, I direct the A.O to delete the addition made on this count. Aggrieved, revenue is in appeal before us. 9.1. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the employees of the group companies, auditors, directors were travelling to different units of the company for holding various conferences and seminars. We have already upheld the travelling expenses allowed by the Ld. CIT(A). The assessee had claimed an amount of ₹ 73,47,894/- for hotel expenses. However, the AO disallowed ₹ 20 lacs on the specious plea that the assessee has not produced a single voucher of hotel expenses, so, the AO made an ad hoc disallowance of ₹ 20 lacs. The Ld. CIT(A), however, allowed the claim of th .....

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king note of the expenses claimed by the assessee the AO asked the assessee to explain the nature of services rendered by M/s. Advent Processing and to furnish a break up of payments made along with the copies of the bills. Pursuant to the query raised by the AO, the assessee replied by letter dated 29.12.2008 which is kept at page nos. 85 to 90 of the paper book. The AO was not satisfied with the reply of the assessee and according to the AO, the invoice only shown that the term drawing and design. So, he was not able to understand the nature of the drawing and design and the relevant of it to the business of the assessee. Therefore, he was pleased to disallow the aforesaid amount. On appeal, the Ld. CIT(A) noted that the assessee had submitted the details of services rendered by Advent Processing and also the assessee had deducted the TDS on such payments. It was brought to our notice that the professional fees paid to Advent processing in the earlier years and subsequent assessment years has not been disallowed and for the first time the AO has resorted to disallow the same. We take note that the TDS of the payment has been deducted and the assessee has submitted the detailed br .....

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