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TMI Blog2020 (2) TMI 1226X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee's Group on 24/7/2008. Subsequently, notice U/s. 153A of the was issued on 17/7/2009 calling for return of income for the AYs 2003-04 to 2008- 09. In response, the assessee company filed its return of income for all the relevant AYs on 13/10/2009. Subsequently, assessments were completed U/s. 143(3) r.w.s 153 of the Act wherein the Ld. AO made additions. On appeal, the ld. CIT (A) granted part relief to the assessee aggrieved by which, both the assessee and the Revenue are now in appeal before us. Appeal No.616/H/2014 (AY: 2003-04): (Assessee's appeal) 3. The assessee has raised several grounds in its appeal however, the cruxes of the issues are that:- (i) The ld. CIT (A) has erred in upholding the addition made by the ld. AO without incriminating materials found at the time of search. (ii) The ld. CIT (A) has erred in upholding the order of the Ld. AO who had disallowed the expenditure incurred towards life tax, registration charges amounting to Rs. 55,025/-. (iii) The ld. CIT (A) has erred in sustaining 50% of the addition amounting to Rs. 37,29,714/- (50% of Rs. 74,59,428) made by the Ld. AO towards inflated expenditure on Granite processing and dressing char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act. (iv) The Ld. CIT (A) has erred in upholding the order of the ld. AO who had made addition of Rs. 11,41,000 towards payment made to Sri Ramakrishna Reddy as unaccounted expenditure. (v) The Ld. CIT (A) has erred in upholding the order of the ld. AO who had made addition of Rs. 4,52,390/- towards levy of interest U/s. 234A of the Act. (vi) The ld. CIT (A) has erred in directing the Ld. AO to verify the source for acquiring land amounting to Rs. 20 lakhs since all details of payment were submitted. (vii) Ld. CIT (A) has erred in sustaining the addition of Rs. 75,285/- made by the Ld. AO towards difference in sale. Appeal No.958/H/2014 (AY: 2005-06): (Revenue's appeal) 7. The Revenue has raised three grounds in its appeal however, the crux of the issue is that the ld. CIT (A) has erred in upholding the addition made by the ld. AO of Rs. 2,81,87,800/- towards unexplained cash receipts. Appeal No.619/H/2014 (AY: 2006-07): (Assessee's appeal) 8. The assessee has raised several grounds in its appeal however, the cruxes of the issues are that:- (i) The ld. CIT (A) has erred in upholding the addition made by the ld. AO without incriminating materials found at the tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment made to Sri Ramakrishna Reddy as unaccounted expenditure. (v) The Ld. CIT (A) has erred in upholding the order of the ld. AO who had made addition of Rs. 8,21,732/- towards levy of interest U/s. 234A of the Act. Appeal No.621/H/2014 (AY: 2008-09): (Assessee's appeal) 11. The assessee has raised several grounds in its appeal however, the cruxes of the issues are that:- (i) The ld. CIT (A) has erred in upholding the addition made by the ld. AO without incriminating materials found at the time of search. (ii) The ld. CIT (A) has erred in upholding the order of the Ld. AO who had disallowed the expenditure incurred towards life tax, registration charges amounting to Rs. 1,32,595/-. (iii) The Ld. CIT (A) has erred in upholding the order of the ld. AO who had made addition of Rs. 54,96,657/- towards levy of interest U/s. 234A of the Act. (iv) The Ld. CIT (A) has erred upholding the addition made by the Ld. AO of Rs. 49,360/- towards prior period expenses. (v) The Ld. CIT (A) has erred upholding the addition made by the Ld. AO of Rs. 9,212/- towards interest paid for delayed remittance of tax deducted at source. Appeal No.961/H/2014 (AY: 2008-09): (Revenue's appeal) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed by the Ld. AO from the special audit report that the assessee company had paid Rs. 55,025/- towards Motor Vehicle Tax and Registration Charges with respect to purchase of Ford Ikon car and the same the was claimed as revenue expenditure. However, the Ld. AO was of the view that the expenditure is capital in nature as it goes to increase the cost of the car the utilization of which gives enduring benefit to the assessee. Therefore, the Ld. AO disallowed the entire amount as deduction and added to the income of the assessee. On appeal, the Ld. CIT (A) held that the Life Tax and Registration Charges are one-time payments and certainly add to the value of the asset and such expense shall be treated as capital expenditure which is entitled for claiming depreciation. At the outset, we do not agree to the view of the Ld. AO and partially agree to the view of the Ld. CIT (A). Motor Vehicle Tax for a stipulated period (normally for a period of 10 years or as the case may be) is collected in advance at the time of the sale of the new vehicle. Therefore, it is revenue expenditure which is pre-paid in nature. In such circumstances, the pre-paid expenditure is to be proportionally tre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out the contract work of processing the granites. Thereafter, the Ld. AO opined the transaction made by the assessee is bogus and it was a novel method adopted by the assessee to reduce its income by inflating bogus expenditure and thereby invoked the provisions of section 40A(2)(b) of the Act and disallowed the expenditure of Rs. 37,04,860/-. In the instance when the amount was paid to M/s. Sai Rock Enterprises proprietrix Smt. V. Prameela Rani, she could not respond to the summons issued U/s. 131 of the Act as she was out of the country. However, the Ld. AO treated the same also as bogus expenditure and disallowed the expenditure of Rs. 37,54,568/- invoking the provisions of section 40A(2)(b) of the Act. Thus, the Ld. AO made an aggregate disallowance of Rs. 74,59,428/- in the hands of the assessee U/s. 40A(2)(b) of the Act. On appeal, The Ld. CIT (A) was of the view that the genuineness of the expenses incurred by the assessee not fully explained for the following reasons:- (i) Both the proprietorship concerns M/s. Block Makers Enterprises and Sai Rock Enterprises owned by the relatives of the Directors had not maintained enough evidence such as books of account in order to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n work was carried out for processing the granites otherwise the granite slabs could not be exported. From this, it is evident that the entire disallowance made by the Ld. AO and partly sustained by the Ld. CIT (A) is based on surmises and conjectures and without examining the quantum of work performed by the proprietorship firms. Moreover, when the proprietorship concerns were no required to maintain books of accounts as per Section 44AD of the Act, Revenue cannot take any adverse inference for those proprietorship concerns in not maintaining the books of accounts. It is a settled legal position that additions made on the basis of presumption is not sustainable in law. Therefore, we do not find any merit in the disallowance made by the ld. AO which was partly sustained by the Ld. CIT (A). Hence, we hereby direct the Ld. AO to delete the additions made and sustained in the hands of the assessee on this issue. Accordingly, this ground raised by the assessee is decided in its favour. 24. Ground No.(iv): Addition of Rs. 29,21,000/- towards payment made to Sri K.V. Ramakrishna Reddy as unaccounted expenditure. 25. During the course of search proceedings, a noting containing the detai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed aggregating to Rs. 4,20,845 are entered in the books of account of the assessee and the amount of Rs. 17 lakh is treated as unexplained investment in the hands of M/s. Reliance Granite Pvt ltd., for the AY 2003-04 and if found so, delete the addition and if found otherwise, decide the matter in accordance with law and merits by passing a speaking order. It is ordered accordingly. 27. Ground No.(v): Addition of Rs. 1,24,940/- towards levy of interest U/s. 234A of the Act. 28. At the outset, the Ld. AR submitted that the due date of filing of the income tax return for the AY 2003-04 was extended up to 30.11.2003 as per section 119 of the Act and the assessee had filed the return of income within such due date on 27/11/2003. However, the Ld. AO had levied interest U/s. 234A of the Act for default in furnishing the return of income. Since these facts are not verified by the Ld. AO as well as not addressed by the ld. CIT (A), we remit back the matter to the file of the Ld. AO for fresh consideration. Needless to mention that if there is no default in furnishing the return of income by the assessee then, interest cannot be levied U/s. 234A of the Act. Assessee's appeal for the AY 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in furnishing the return of income. Since these facts are not verified by the Ld. AO as well as not addressed by the ld. CIT (A), we remit back the matter to the file of the Ld. AO for fresh consideration. Needless to mention that if there is no default in furnishing the return of income by the assessee then, interest cannot be levied U/s. 234A of the Act. Appeal No.957/H/2014 (AY: 2004-05): (Revenue's appeal) 39. Deletion of the addition made by the ld. AO of Rs. 1,82,90,500/- towards unexplained cash receipts. 40. During the course of search proceedings certain documents were seized from the residence of Sri N. Tirupati Rao, former Director of assessee-company (Midwest Granite Private Limited) containing details of cash receipts of M/s. Sam (Srilankan company). It was also observed that the assessee-company was the majority share holder of M/s. Sam. On query, Mr. N. Tirupati Rao stated that this amount was accounted in the books of M/s. Sam. Since Mr. N. Tirupati Rao did not produce the books of account of M/s. Sam the Ld. AO added the same in the hands of the assessee company as unexplained cash credit U/s. 68 of the Act. On appeal, the ld. CIT (A) after examining the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne assessee cannot be assessed in the hands of another assessee and such assessment amounts to double taxation of the same amounts. Hence, I am of the considered opinion that the income assessed in the hands of SAGMPL u/s. 153C r.w.s 1449(c) of the Act is not assessable in the hands of the assessee u/s. 143(3) r.w.s 153A. On this ground, the assessee succeeds and the addition stands deleted. The ground of appeal is treated as allowed." 41. From the above it is apparent that the finding of the Ld. CIT (A) is that the same income was assessed in the hands of another assessee and therefore, it cannot be taxed one again in the hands of the assessee-company as it would amounts to double taxation. Hence, the ld. CIT (A) deleted the addition which is appropriate. Since, the Revenue has not come out with any other material or argument to negate the finding of the ld. CIT (A) we do not find it necessary to interfere with his order. Therefore, the appeal of the Revenue is devoid of merits. Appeal No.618/H/2014 (AY: 2005-06): (Assessee's appeal) 42. Ground No.(i):- Addition made by the ld. AO without incriminating materials found at the time of search. 43. Since the assessee has withdraw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submission of the ld. AR. After hearing both sides, we find it appropriate to remit the matter to the file of the Ld. AO for fresh consideration as the issue is neither verified by the Ld. AO nor addressed by the Ld. CIT (A). Needless to mention that if there is no default in furnishing the return of income by the assessee then, interest cannot be levied U/s. 234A of the Act. 52. Ground No.(vi): The ld. CIT (A) has erred in directing the Ld. AO to verify the source for acquiring land amounting to Rs. 20 lakhs though all details of payment were submitted before the Ld. AO. 53. During the course of assessment proceedings pursuant to search it was noticed by the ld. AO from the seized material (page 121 of Annexure-A/MGPL/OFF/2) that the assessee had paid Rs. 93,58,000/- for the proposed acquisition of land. Out of the amount of Rs. 93,58,000/- an amount of Rs. 20 lakh was shown as paid by M/s. Nova Granite (India) Pvt Ltd., (Group Company of the assessee) on behalf of the assessee-company. Since the incremental value of the land for Rs. 20 lakh was not disclosed in the balance sheet of the assessee company for the AY 2004-05 to 2006-07 the Ld. AO opined that the amount of Rs. 20 la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11.00 5.00 5.00 10.00 Rs. 5,00,000 DD taken from Nova and debited to Midwest. Anwar Pasha 6.60 2.50 5.00 7.50 Rs. 3,50,000 DD taken from Nova and debited to Midwest Munithqeem 4.70 2.50 5.000 7.50 Rs. 2,50,000 DD taken from Nova and debited to Midwest Ubedulla 2.00 2.00 5.00 7.00 Rs. 1,00,000 DD taken from Nova and debited to Midwest Sardar Pasha 2.12 3.00 3.00 6.00 Rs. 50,000 DD taken from Nova and debited to Midwest Aslam 2.12 2.00 1.00 3.00 Rs. 2,00,000 DD taken from Nova and debited to Midwest Pandamma 4.91 2.10 13.90 16.00 Unnikrishna 0 0.50 0 0.50 Rs. 50,000 DD taken from Nova and debited to Midwest Mallika Rangaswamy Rs. 2,50,000 DD taken from Nova and debited to Midwest B C Mallanna Rs. 2,00,000 DD taken from Nova and debited to Midwest Total 51.72 37.40 56.18 93.58 Total payment made Rs. 23.25 lakhs (through Nova Rs. 20.00 lakhs and through MGPL Rs. 3.25 lakhs. For P. Murali & Co., Chartered Accountants Sd/- Partner **Aggregate amount of Rs. 20 lakh was paid through Demand Drafts by M/s. Nova Gra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the AY 2004-05, the same decision holds good. Accordingly, the appeal of the Revenue is devoid of merits. Appeal No.619/H/2014 (AY: 2006-07): (Assessee's appeal) 61. Ground No.(i):- Addition made by the ld. AO without incriminating materials found at the time of search. 62. Since the assessee has withdrawn this ground, the ground does not survive for adjudication. 63. Ground No.(ii): Disallowance of expenditure incurred towards life tax and registration charges amounting to Rs. 1,83,285/-. 64. This ground is identical to the ground no.(ii) raised by the assessee in the appeal for the AY 2003-04 hereinabove. Hence, the same decision shall hold good as the facts are identical for the relevant assessment year also. 65. Ground No.(iii): Sustaining 50% of the addition amounting to Rs. 36,20,477/- (50% of Rs. 72,40,954) made towards inflated expenditure on Granite processing and dressing charges U/s. 37(1) of the Act. 66. This ground is identical to the ground no.(iii) raised by the assessee in the appeal for the AY 2003-04, 2004-05 and 2005-06 hereinabove except for the fact that the quantum of payment made to M/s. Block Makers Enterprises is Rs. 35,88,076/- and to M/s. Om Sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsatory in nature and it is not barred by section 37 of the Act. Ld. DR relied on the orders of the Ld. Revenue Authorities. 73. We find merit in the submission of the ld. AR. Explanation-1 to section 37 prohibits any expenditure incurred by the assessee which is related to an offence or any expense prohibited by law. In the case of the assessee it appears that the expenditure incurred by the assessee with respect to payment made to Central Excise is in regard to noncompliance of the provisions of the Act which is only penal in nature and it is not an act which is prohibited by law or with respect to any offence. Hence, we hereby direct the ld. AO to delete the addition made for Rs. 39,328/-. 74. Ground No.(vii): The Ld. CIT (A) has erred upholding the addition made by the Ld. AO of Rs. 1,07,898/- towards interest paid for delayed remittance of tax deducted at source. 75. At the outset, the Ld. AR submitted that the amount of Rs. 1,07,898/- was paid to the Revenue towards delay in remittance of TDS and the Ld. AO disallowed the expenditure by relying on Explanation-1 to section 37 of the Act which was confirmed by the Ld. CIT (A). The Ld.AR argued by stating that the interest pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Circular No.729 dated 1/11/1995 issued by the CBDT the crux of which is as follows:- "When rough granite is cut to dimensional blocks of uniform colour and size, it not only undergoes mechanical process of cutting but also certain amount of dressing and polishing is involved to removed various natural flaws such as colour variations, grain variations, joints, fissures, moles, patches, hair line cracks etc. The profits derived from the export of such granite dimensional blocks would, accordingly, be eligible for deduction under this section." 82. Based on the above Circular and the activity of the assessee being cutting, polishing and sizing of the granites, the ld. CIT (A) held that it amounts to manufacturing activity / production of goods as envisaged under the Act. Accordingly, the Ld. CIT (A) granted relief to the assessee by allowing the claim of additional depreciation. We do not find any infirmity in the order of the Ld. CIT (A) as he has only relied on the Circular of the CBDT and the fact that the assessee's activity was cutting, polishing and sizing of granite is not in dispute. Therefore, the order of the ld. CIT (A) does not call for any interference. Hence, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as further submitted that for the relevant AY the due date of filing the return of income was extended up to 29/02/2008 as per order U/s. 119 of the Act. It was therefore pleaded that since there was no default in furnishing the return of income by the assessee, interest levied by the Ld. AO U/s. 234A of the Act for Rs. 8,21,732/- is not justifiable. The ld. DR could not successfully controvert to the submission of the ld. AR. After hearing both sides, we find it appropriate to remit the matter to the file of the Ld. AO for fresh consideration as the issue is neither verified by the Ld. AO nor addressed by the Ld. CIT (A). Needless to mention that if there is no default in furnishing the return of income by the assessee then, interest cannot be levied U/s. 234A of the Act. Appeal No.621/H/2014 (AY: 2008-09):(Assessee's appeal) 93. Ground No.(i):- Addition made by the ld. AO without incriminating materials found at the time of search. 94. Since the assessee has withdrawn this ground, the ground does not survive for adjudication. 95. Ground No.(ii): Disallowance of expenditure incurred towards life tax and registration charges amounting to Rs. 1,32,595/-. 96. This ground is ide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act for Rs. 11,48,84,461/-. 104. During the course of scrutiny assessment proceedings it was observed by the Ld. AO that the assessee has claimed deduction U/s. 10B of the Act. On perusing the issue the Ld. AO opined that the assessee is not entitled for the benefit of deduction U/s. 10B of the Act for the following reasons: (i) Extraction of Granite Block from the mother rock, dressing them, cutting them into smaller piece, polishing the granite does not amount to manufacturing or production as envisaged under the Act. (ii) The assessee company had transferred the granite quarry lease from its sister company to its name and therefore, it amounts to reconstitution of a business already into existence. 105. On appeal, the Ld. CIT (A) granted relief to the assessee due to the following reasons:- (i) The essence of Circular No. 729 dated 1/10/1995 issued by the CBDT can be summarized as under: "When rough granite is cut to dimensional blocks of uniform colour and size, it not only undergoes mechanical process of cutting but also certain amount of dressing and polishing is involved to removed various natural flaws such as colour variations, grain variations, joints, fissur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unting to Rs. 2,62,520/-. 112. This ground is identical to the ground no.(ii) raised by the assessee in the appeal for the AY 2003-04 hereinabove. Hence, the same decision shall hold good as the facts are identical for the relevant assessment year also. 113. Ground No.(iii): The Ld. CIT (A) has erred in sustaining the disallowance made by the Ld. AO to the extent of Rs. 14,53,922/- towards foreign exchange fluctuation. 114. During the course of assessment proceedings pursuant to search that the assessee had claimed foreign exchange fluctuation expenses of Rs. 14,53,922/- as deduction towards purchase of Hydraulic machine from Sandvik Mining. The Ld. AO opined that the aforesaid expense is attributable towards the purchase of capital asset and therefore, it cannot be allowed as revenue expenses accordingly he disallowed the amount of Rs. 14,53,922/- as allowable deduction. On appeal, the Ld. CIT (A) upheld the order of the Ld. AO. However, granted depreciation on the same. 115. At the outset, we do not find any infirmity in the order of the Ld. CIT (A) by virtue of section 43A of the Act. Therefore, we do not find it necessary to interfere in the order of the Ld. CIT (A). 116. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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