TMI Blog2018 (1) TMI 1399X X X X Extracts X X X X X X X X Extracts X X X X ..... Tyres Ltd vs CIT (2002 (5) TMI 5 - SUPREME COURT) wherein it was observed that the AO is not permitted to make any adjustment towards book profit, once the accounts are prepared in accordance with Parts II and III of Schedule VI of the Companies’ Act, 1956. Addition towards share capital and share premium u/s 68 - unexplained cash credit - assessee failed to justify issue of shares at a premium and no evidence / documents have been filed to prove the identity, genuineness of transactions and creditworthiness of the parties - Held that:- There is no reason for the AO to doubt the genuineness of transaction only on the basis of issue of shares at a premium when the issue of shares at a premium is not at all relevant for the purpose of addition made u/s 68 of the Act. What needs to be considered for the purpose of unexplained cash credit u/s 68 is, identity, genuineness of transaction and creditworthiness of the parties. In this case, the assessee has proved all the 3 ingredients by filing necessary evidences and hence, there is no reason for the AO to make addition towards share premium when share premium cannot be considered as unexplained credit u/s 68 of the Act. The CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the considered view that the CIT(A) was right in deleting addition made by the AO towards sundry creditors u/s 41(1) - no error in the order of the CIT(A) and therefore, we are inclined to uphold the order of the CIT(A) and reject ground raised by the revenue. Short deduction of tds u/s 194C or 194J - digital print fee is incurred for the services rendered which is professional / technical service - Held that:- we find merits in the arguments of the assessee for the reason that once there is compliance to TDS provisions, even if there is short deduction of TDS or TDS has been deducted under different sections, there is no scope for the AO to disallow expenditure u/s 40(a)(ia) of the Act as the provisions u/s 40(a)(ia) is applicable only when there is no TDS deduction. This legal proposition is supported by the decision in the case of CIT vs SK Tekriwal (2012 (12) TMI 873 - CALCUTTA HIGH COURT) wherein it was held that if there is lesser deduction of TDS due to any difference of opinion, no disallowance can be made u/s 40(a)(ia) of the Act. If there is short deduction, the revenue is free to proceed to pass an order u/s 201 of the Act, but no disallowance can be made u/s 40(a)(i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by making adjustments towards addition made on account of disallowance of amortization of subsidized cost. 3. Aggrieved by the assessment order, assessee filed appeal before the CIT(A). Before the CIT(A), the assessee has filed elaborate written submissions to contest each and every addition made by the AO. The CIT(A), for the detailed discussion in his order dated 11-01-2016 partly allowed appeal filed by the assessee, wherein he has deleted additions made by the AO towards unexplained cash credits u/s 68 towards share capital and share premium, disallowance of expenditure incurred for stting up UAE branch, disallowance of expenditure u/s 40(a)(ia) for failure to deduct TDS / short deduction of TDS and addition towards AIR mismatch; however, confirmed recomputation of book profit u/s 115JB by making adjustments towards disallowance of amortization of subsidized cost in respect of sale of projectors and accessories on the ground that the assessee has written off subsidized cost incurred on sales of projectors by changing its accounting policy without any valid reasons for change in standard accounting policies followed in the earlier years. According to the CIT(A), the assesse h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 605 (SC). 5. The Ld.DR, on the other hand, supported the order of the CIT(A). 6. We have heard both the parties, perused the material available on record and gone through the orders of authorities below. The assessee has treated subsidised cost on sale of projectors and its accessories as deferred revenue expenditure and amortised over a period of agreement. During the year under consideration, the assessee has changed its accounting policy so as to charge total subsidised cost incurred to the P L Account in the year in which such cost has been incurred and such changes has been disclosed in the notes to accounts. The AO made addition to the book profit computed u/s 115JB on the ground that the assessee has failed to make positive adjustments towards amortisation of subsidised cost even though such expenditure is not deductible during the year under consideration because of its own treatment in the earlier financial year. The AO further observed that the assessee itself has considered subsidised cost as deferred revenue expenditure and amortised over a period of agreement by following matching concept principles of accounting. However, without any material changes in f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, admittedly, the assessee has incurred subsidised cost on sale of projectors and accessories and such cost has been treated as revenue expenditure and also amortised over a period of agreement. However, due to changed circumstances, it has changed its accounting policies so as to charge total subsidised cost incurred in the year in which such expenditure has been incurred. The assessee also disclosed such changes in accounting policies in the notes to accounts for better disclosure of its financial statements. It is also an admitted fact that the assessee has prepared its accounts in accordance with Parts II and III of Schedule VI of the Companies Act, 1956. The accounts of the assessee has been audited by the statutory auditors and also approved by the Board. Once, accounts are prepared in accordance with Parts II and III of Schedule VI of the Companies Act and such accounts have been approved by the Board of directors of the company, then there is no scope for the AO to make any adjustment towards book profit computed u/s 115JB. In this case, such adjustment is not in accordance with Explanation 1 to section 115JB of the Act. We further notice that the adjustments made by the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of Hon ble Bombay High Court in the case of Major Metals vs UOI 2016-LL-0517-33 It is the contention of the assessee that it is engaged in converting majority of the multiplexes and from time to time single screens in the country to digital cinema initiative platform and enjoys the privilege of being India s DCI compliant entity having Virtual Print fee contracts. The assessee is now listed on the Bombay Stock Exchange and the National Stock Exchnage has issued shares to UFO at a price of ₹ 1,043 per share having a face value of ₹ 10/-. Such shares has been issued to hold controlling interest considering the growth in number of screens. The assessee has filed various details before the AO to justify issue of shares at a premium. The assessee also filed details to prove identity, genuineness of transaction and creditworthiness of the parties. Therefore, there is no reason for the AO to doubt genuineness of transactions so as to make addition u/s 68. 10. We have heard both the parties and considered material available on record. The AO made addition towards share premium u/s 68 of the Act on the ground that the assessee has failed to justify issue of shares at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant having 26.41% in FY 2011-12 and was having 51.85%Jn FY 2012-13 it was having 76.42% And in FY 2013-14 the holding was of 91.33%. During the course of assessment proceedings Ld. AR of the appellant has submitted various documents like share subscription and share holders agreement, copy of bank statement showing receipt of share application money, copy of form No.2 filed with Registrar of Companies, certified copy of Board resolutions and annual accounts of UFO. All these evidences are very relevant to the issue under consideration. Further, the AO has not appreciated it properly and has wrongly presumed that the appellant has not produced any concrete evidence. 7. As regards the fair market value of companies share, the working given by AO is untenable because it is mechanical calculation having no reference to the goodwill, prospects-factor of revenue in the business. Obviously the AO made the addition u/s.68 of the Act without making out any case. There is nothing which can be presumed to be unexplainable because UFO is an existing party, transaction is done through banking channel and everything is verifiable. The AO has failed to explain as to how a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d share premium is capital receipt which cannot be taxed when source of receipt is explained and documentary evidence are on record, Therefore I find no justification to approve such baseless addition made by the AO u/s.68 of the Act. The AO is therefore directed to delete ₹ 1,83,12,324/-. 11. Facts remain unchanged. The revenue fails to bring on record any evidences to controvert the findings of facts recorded by the Ld.CIT(A). Hence, we are inclined to uphold the findings of CIT(A) and reject ground raised by the revenue. 12. The next issue that came up for our consideration is addition made by the AO towards disallowance of expenditure for setting up of UAE branch. The AO disallowed expenditure incurred for setting up of UAE branch on the ground that the assessee has not carried out any commercial activity; hence, expenditure is to be considered as preliminary and preoperative expenses u/s 35D of the Income-tax Act, 1961 and also amortised over a period of 5 years from the date of commencement of its business activity. It is the contention of the assessee that expenditure incurred for setting up UAE branch is a normal business expenditure incurred to establi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmissions has rightly deleted addition made by the AO. We do not find any error in the order of CIT(A). Hence, we are inclined to uphold the findings of the CIT(A) and dismiss ground raised by the revenue. 16. The next issue that came up for our consideration is addition of outstanding sundry creditors of ₹ 80,52,899 u/s 41(1). The AO made addition towards unproved sundry creditors on the ground that the assessee has failed to file any evidence to prove the sundry creditors appearing in the books of account. It is the contention of the assessee that the AO was incorrect in making addition towards sundry creditors u/s 41(1) without appreciating the fact that the assessee has not derived any cash or kind benefit by cessation of liability and such liability has been paid in the subsequent financial year. Therefore, the AO was incorrect in disallowing sundry creditors u/s 41(1) of the Act. 17. Having heard both the sides, we find merit in the arguments of the assessee for the reason that the Ld.CIT(A) has recorded a categorical finding that the assessee has paid all sundry creditors in the subsequent financial year and proof for such payment has been furnished. The AO h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was held that if there is lesser deduction of TDS due to any difference of opinion, no disallowance can be made u/s 40(a)(ia) of the Act. If there is short deduction, the revenue is free to proceed to pass an order u/s 201 of the Act, but no disallowance can be made u/s 40(a)(ia) of the Act. The CIT(A), after considering relevant facts has rightly deleted addition made by the AO. Therefore, we uphold the findings of CIT(A) and reject ground raised by the revenue. 20. The next issue that came up for our consideration is addition made by the AO towards AIR mismatch for ₹ 62,900. The AO has made addition of ₹ 62,900 on the ground that the assessee has made TDS claim of ₹ 1,258 without considering corresponding receipts in the books of account. It is the contention of the assessee that it has furnished reconciliation of TDS difference and explained that certain parties have deducted excess TDS. The assessee further contended that it had not claimed TDS credit of ₹ 1,258 by filing return of income; however, corresponding income was offered to tax. Hence, there was no loss of revenue. Therefore, there is no reason for making addition on the basis of TDS. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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