TMI Blog2021 (1) TMI 783X X X X Extracts X X X X X X X X Extracts X X X X ..... bstantiate the nature of expenses and did not file the required details - HELD THAT:- AR has pointed to the details that have been filed by the assessee before the AO. The submissions of these details have not been controverted by the Revenue. Further Ld. AR has pointed to the fact that the expenses have been incurred for the travelling (including related foreign travel) expenses of the Directors and have been incurred for the purpose of the business of the assessee. These submissions have not been controverted by Revenue. Considering the totality of the aforesaid facts and the submissions of Ld. AR, we are of the view that the disallowance of expenses was not called for in the present case. Levy of interest u/s 234A - Delay in filing return of income - HELD THAT:- In the present case, it is an undisputed fact that notice u/s 153A was issued to the assessee on 07.10.2009 directing the assessee to file the return of income within 16 days of the service of the aforesaid notice. It is the contention of the assessee that the aforesaid notice was served on the assessee on 19.10.2009. The 16 days period to file the return of income expired on 04.11.2009 but the return of income w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by Revenue. Considering the aforesaid facts, we are of the view that no disallowance of Diwali expenses is called for. Advance payment - assessee s contention that the amount was paid to the contractor which in turn was to be distributed as daily wages to the labourers - HELD THAT:- Considering the aforesaid contention of the assessee it has been found that genuineness of the expenditure has not been doubted. We are of the view that no disallowance is called for. Thus the grounds of the assessee are partly allowed. Disallowance of additional depreciation in respect of plant and machinery and pre-operative expenses - HELD THAT:- Before us, no material has been placed by the Revenue to demonstrate that the pre-operative expenses consist of indirect expenses which are not directly attributable for bringing the asset to its working condition. We are of the view that once the AO has accepted the pre-operative expenses to be a part of cost of capital asset and has allowed the depreciation u/s 32 of the Act, there remains no reason for disallowing the claim of additional depreciation. Direct the AO to allow the claim of additional depreciation on such pre-operative expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of rice and sale and purchase thereof. Assessee filed its original return of income for AY 2007-08 on 31.10.2007 declaring loss of ₹ 10,86,965/-. The return of income was initially processed u/s 143(1) on 14.02.2009 at Nil income. Thereafter, a search u/s 132 of the Act was carried out in Daawat Group of cases including the assessee on 10.2.2009. Notice u/s 153A dated 07.10.2009 was served on assessee requiring the assessee to file the return of income with 16 days of the service of the aforesaid notice and in response to which assessee filed return of income on 11.12.2009 declaring the loss at ₹ 10,86,965/-. The case was taken up for scrutiny and thereafter, vide order dated 19.8.2011 passed u/s 153A the total taxable income was determined at ₹ 58,30,841/- 4. As far as A.Y. 2008-09 is concerned, Assessee had filed the original return of income on 30.09.2008 declaring loss of ₹ 2,82,80,689/- which was initially processed u/s 143(1) of the Act. Thereafter in view of the search u/s 132 conducted in the case of assessee, notice u/s 153A dated 07.10.2009 was served on the assessee on 19.10.2009 requiring the assessee to file the return of income within 16 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olding that an amount of ₹ 2,49,650/- is in nature of personal expense and thereby disallowing the same and CIT(A) has also erred in upholding the same. Addition of ₹ 9.588/- on account of expenditure on towards printing of MOA being of capital nature 9. That, in view of the facts and circumstances of the case and in law the A.O. has erred in law and on facts in holding that the amount of ₹ 9,588/- spent towards printing of memorandum of article is capital expenditure in nature and not a revenue expenditure and CIT(A) has erred in law and on facts in upholding the same. 10. That the explanations given, evidence produced and material placed and made available on record have not been properly considered and judicially interpreted and the same do not justify the addition made. 11. That the addition/disallowance made is based on mere surmises conjunctures and the same cannot be justified by any material on record is highly excessive. 12. That the interest u/s 234A, 234B, 234C and 234D has been wrongly and illegally charged as there is no delay in filling of return and there is no default of payment of Advance tax as the receipt / income i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) of the Act. 9. That, in view of the facts and circumstances of the case, the A.O. and subsequently CIT(A) has failed to appreciate that payment of ₹ 8,64,464/- is made out of commercial expediency and is allowable expenditure. 10. That A.O., in view of the facts and circumstances of the case, has erred in law and on facts in disallow sum of ₹ 1,70,501/- U/s 40A(3) paid as freight and CIT(A) has erred in law and on facts in upholding the same. The CIT(A) has failed to appreciate that payment is made out of commercial expediency and is allowable expenditure Addition on account of personal expenses 11. That in view of the facts and circumstances of the case and in law the A.O^ has erred in holding that an amount of ₹ 20,680/- is in nature of personal expense and thereby disallowing the same and CIT(A) has also erred in upholding the same. Addition on account of disallowance of additional depreciation 12. That in view of the facts and circumstances of the case and in law the A.O./CIT(A) has erred in law and on facts in confirming an addition on account of disallowance of additional depreciation on plant and machinery. Disallowan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AR submitted that search operation u/s 132 of the Act was undertaken in Daawat Group of cases including the assessee in 10.02.2009. Pursuant to the search conducted in the case of assessee, the AO issued notice u/s 153A on 07.10.2009 asking the assessee to file the return of income and in response to which assessee filed the return of income on 11.12.2009 declaring loss of ₹ 10,86,965/-. He submitted that in pursuance of the notice u/s 153A, the regular assessment proceedings u/s 143(3) stood abated. He submitted that the AO proceeded to make various additions/disallowances in respect of which no incriminating material was found during the course of search by merely relying on the finding of the special auditor. He submitted that assessment u/s 153A of the Act can be made only on the basis of seized material found during the course of search and any addition made de-hors any material/document found during the course of search is clearly outside the scope of proceedings u/s 153A of the Act. He therefore submitted that the action of the AO in passing the impugned order is without jurisdiction, illegal and bad in law. Ld DR on the other hand supported the order of lower authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Obviously, an assessment has to be made under this section only on the basis of the seized material. (v) In the absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word assess in section 153A is relatable to abated pro ceedings (i.e., those pending on the date of search) and the word reassess to the completed assessment proceedings. (vi) In so far as the pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under section 153A merges into one. Only one assessment shall be made separately for each assessment year on the basis of the findings of the search and any other material existing or brought on the record of the Assessing Officer. (vii) Completed assessments can be interfered with by the Assessing Officer while making the assessment under section 153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al person and therefore, there cannot be a question of incurring of any personal expenses. He further submitted that identical disallowance was made in the case of L. T. foods Ltd, a group company of the assessee and when the matter travelled before the Co-ordinate Bench of Tribunal, the issue was decided in Assessee s favour (ITA No. 4164/Del/2013 order dated 30.09.2020). He pointed to the relevant findings of the Tribunal. He therefore, submitted that the expenses were allowable u/s 37 of the Act and the disallowance deserves to be deleted. Ld DR on the other hand supported the orders of the lower authorities. 17. We have heard the rival submissions and perused the material available on record. The issue in the present ground is with respect to disallowance of expenses of ₹ 2,49,650/-. These expenses have been disallowed for the reason that the assessee did not substantiate the nature of expenses and did not file the required details. Before us, Ld. AR has pointed to the details that have been filed by the assessee before the AO. The submissions of these details have not been controverted by the Revenue. Further Ld. AR has pointed to the fact that the expenses have be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee on 07.10.2009 directing the assessee to file the return of income within 16 days of the service of the aforesaid notice. It is the contention of the assessee that the aforesaid notice was served on the assessee on 19.10.2009. The 16 days period to file the return of income expired on 04.11.2009 but the return of income was filed on 11.12.2009. The contention before us is that the assessee vide letter dated 04.11.2009 requested the AO to provide additional time to file the return and the said application of the assessee has not been rejected by the AO but at the same time it is also a fact that there is nothing on record to demonstrate that the AO, in response to the aforesaid request of the assessee had extended the time for filing the return of income. In such a situation we are of the view that there has been delay on the part of the assessee in filing the return of income and that the assessee was liable for payment of interest u/s 234A from immediately following the due date i.e. 20.10.2009. We finding no infirmity in the order of AO and thus the ground of appeal of the assessee is dismissed. 23. Thus the appeal of the assessee is partly allowed. 24. Now we tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 7,46,976 ₹ 1,19,367 ₹ 6,27,609 2. Depreciation on capital assets of ₹ 5,35,468/- acquired in cash ₹ 93,406/- - ₹ 93,406/- 3. Salary to Rakesh Gaur ₹ 28,745 - ₹ 28,745 4. Advance to Contractor towards labour charges ₹ 97,734/- - ₹ 97,734/- 5. Diwali expenses ₹ 43,155 - ₹ 43,155 6. Freight charges paid for purchase of paddy ₹ 2,63,776 ₹ 1,19,460 ₹ 1,44,316 Total ₹ 12,73,792 ₹ 2,38,827 ₹ 10,34,965 30. Aggrieved by the order of CIT(A), assessee is now before us. 31. Before us, Ld AR submitted that the intention behind the introduction of the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f expenditure which are otherwise allowable as deduction u/s 28 to 37 of the Act. In support of his contention, he also placed reliance on the CBDT Circular No. 34 (F. No 13A/92/69-IT(A-II) dated 05.03.1970. He further submitted that depreciation cannot be considered to be an expenditure but it is an allowance. He also placed reliance on the decision of Saral Motors General Finance Ltd. vs ACIT 121 ITD 50(Del). 33. With respect to the disallowance of other payments aggregating to ₹ 1,69,634/-, he submitted that it includes payment of ₹ 28,745/- made to Mr. Rakesh Gaur, an employee of the assessee. He submitted that the employee was not having a bank account at that point of time and that in subsequent months the payment of his salary has been made through cheque. He submitted that since the payment is not doubted, the same be allowed. 34. As far as payment of ₹ 43,155/- is concerned, he submitted that the same was incurred for purchase of gifts on the occasion of Diwali and that the payment was made to several parties and no individual payment exceeded ₹ 20,000/-. In support of his aforesaid contention, he pointed to the details at page 140 of the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 4,03,951 4. Sales and business promotion expenses ₹ 1,31,900 5. Interest account payments ₹ 2,67,000 6. Cash deposited in bank account of Daawat Foods Ltd. ₹ 22,000 Total ₹ 40,00,647 81. After considering the contentions of the assessee, the CIT(A), however, deleted disallowance to the extent of ₹ 2,15,985/- being 20% of cash payments of ₹ 10,79,924/- made on holidays and Sundays, and the CIT(A), however, confirmed disallowance to the extent of ₹ 5,84,144 under section 40A(3) of the Act, in the following manner, and no further appeal has been preferred by the department. Sl. No Nature of payment As per AO Exclusion Payments considered for disallowance Disallowance confirmed by CIT(A) 1. Freight charges paid to transporters/truck operators ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the assessee, the truck driver acts as an agent of the assessee. By no stretch of imagination can we say that the truck driver who operates the track pursuant to the agreement between the assessee and the transport contractor would be the agent of the assessee. Even otherwise also, we are not prepared to accept such an argugment because such acceptance would render the provisions under section 40A(3) of the Act nugatory and every payment could be taken out of the purview of section 40A(3) of the Act by delivering the cash to some intermediary calling him as an agent. There is no privity of contract between the person receiving the sums in cash and the assessee and the truck driver. Such payments are not protected under rule 6 DD (k) of the Rules. On this premise, we reject contention of the assessee. 84. An alternative plea is taken on behalf of the assessee to the effect that in certain instances, the assessing officer has proceeded to disallow expenses without first verifying if the aggregate payments were made to a single person on a single day and if the pre-requisites of section 40A(3) of the Act were fulfilled. This plea does not seem to have been taken before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses. 42. As far as the disallowance of Diwali expenses of ₹ 43,155/- is concerned. It is the contention of the assessee that the payments have been made to various parties and no individual payment exceeds ₹ 20,000/-. The aforesaid contention of the assessee has not been found to be incorrect nor the genuineness of expenditure has been doubted by Revenue. Considering the aforesaid facts, we are of the view that no disallowance of Diwali expenses is called for. 43. With respect to the advance payment of ₹ 97,734/-. It is the assessee s contention that the amount was paid to the contractor which in turn was to be distributed as daily wages to the labourers. It is also the contention that no payment to an individual was in excess of ₹ 20,000/-. Considering the aforesaid contention of the assessee it has been found that genuineness of the expenditure has not been doubted. We are of the view that no disallowance is called for. Thus the grounds of the assessee are partly allowed. 44. Ground No.12 is with respect to disallowance of additional depreciation in respect of plant and machinery and pre-operative expenses. 45. The AO has noted that during th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it may be included as part of cost of the construction project or as part of the cost of the fixed asset. He further submitted that the Guidance Note on Treatment of Expenditure during the Construction Period issued by Institute of Chartered Accountants of India also provides that the expenditure incurred which are not related directly or indirectly to the work of construction cannot be capitalized and cannot be added to the cost of asset. He submitted that following the Guidance Note and pronouncement of Institute of Chartered Accountants of India, the cost which are directly attributable to fixed asset had been capitalized and once the same has been capitalized and has been accepted by the AO along with depreciation and remains no reason to disallow the additional depreciation. 48. Learned DR on the other hand supported the order of lower authorities. 49. We have heard both the parties and perused all the relevant materials available on record. The issue in the present ground is with respect to claim of additional depreciation. As far as the claim of additional depreciation on the old plant and machinery of ₹ 55,85,227/- is concerned, before us, Learned AR has not p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o disallowance to be made in cases where provisions of section 172 of the Act was applicable and in case of short deduction of tax at source, disallowance to be made only in respect of portion of payment on which TDS has not been deducted. With respect to the relief granted by CIT(A),it is the submission of the Learned AR that no appeal have been preferred by the Department and thus the grievance of the assessee is restricted to the disallowance upheld by the CIT(A) on account of non-deduction of TDS and on account of short deduction of TDS. With respect to non-deduction of TDS, the Learned AR submitted that disallowance u/s 40(a)(ia) of the Act if at all is required to be made, the same be restricted to 30% of the expenditure in view of the fact that the amendment of section 40(a)(ia) has been held to be curative in nature and was introduced to reduce the undue hardship caused to assessees on disallowance of entire amount of expenditure. He further submitted that identical issue arose in the case of L. T. Foods, a group company wherein the Hon ble Tribunal in ITA No.4164/Del/2013 vide order dated 30.09.2020 in A.Y. 2007-08 held that the amendment made by the Finance Act, 2014 in S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arties and perused all the materials available on record. The issue in the present ground is with respect to disallowance u/s 40(a)(ia) of the Act. The disallowance u/s 40(a)(ia) can be divided into two parts. One is with respect to non-deduction of TDS and the other is with respect to short deduction of TDS. As far as the issue of nonITA deduction of TDS is concerned, it is the contention of the assessee that the Co-ordinate Bench of Tribunal in assessee s own case and the various other benches of the Tribunal have held that the amendment u/s 40(a)(ia) of the Act to be clarificatory and retrospective and the disallowance was restricted to 30% of expenditure. We however, find that the Hon ble Apex Court in the case of Shree Choudhary Transport Company (supra) noted inter alia that one of the question for determination before it is as under: As to whether sub-clause (ia) of section 40(a) of the Act, as inserted by the Finance (No. 2) Act, 2004 with effect from 1-4-2005, is applicable only from the financial year 2005-06 and, hence, is not applicable to the present case relating to the financial year 2004-05; and, at any rate, whole of the rigour of this provision cannot be appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce in juxtaposition the main part of section 40(a) (ia) of the Act as it would read after the amendments of 2008, 2010 and 2014 respectively, as under: (i) 'After the amendment by Finance Act, 2008 40. Amounts not deductible.-Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head Profits and gains of business or profession , (a) in the case of any assessee ** ** ** (ia) any interest, commission or brokerage, rent, royalty14, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid, (A) in a case where the tax was deductible and was so deducted during the last month of the previous year, on or before the due date specified in sub-section (1) of section 139; or (B) in any other case, on or before the last day of the previous ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the previous year but paid after the due date specified in sub-section (1) of section 139, thirty per cent. of such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid: Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso.16 ** ** ** 19.2 The aforesaid amendment by the Finance (No.2) Act of 2014 was specifically made applicable w.e.f. 14-2015 and clearly represents the will of the legislature as to what is to be deducted or what percentage of deduction is not to be allowed for a particular eventuality, from the assessment year 2015-16. 19.3 On the other hand, in the case of Calcutta Export Co. (supra), this Court noticed the aforesaid two amendments to section 40(a)(ia) of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vious year and two, those who have deducted the tax in the remaining eleven months of the previous year. It was provided that in the case of assessees falling under the first category, no disallowance under section 40(a)(ia) of the Incometax Act shall be made if the tax deducted by them during the last month of the previous year has been paid on or before the last day of filing of return in accordance with the provisions of section 139(1) of the Income-tax Act for the said previous year. In case, the assessees are falling under the second category, no disallowance under section 40(a)(ia) of Income-tax Act where the tax was deducted before the last month of the previous year and the same was credited to the Government before the expiry of the previous year. The net effect is that the assessee could not claim deduction for the TDS amount in the previous year in which the tax was deducted and the benefit of such deductions can be claimed in the next year only. 21. The amendment though has addressed the concerns of the assessees falling in the first category but with regard to the case falling in the second category, it was still resulting into unintended consequences and causing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax rates are stable and uniform or in cases of big assessees having substantial turnover and equally huge expenses and necessary cushion to absorb the effect. However, marginal and medium taxpayers, who work at low gross product rate and when expenditure which becomes the subject matter of an order under section 40(a)(ia) is substantial, can suffer severe adverse consequences if the amendment made in 2010 is not given retrospective operation, i.e., from the date of substitution of the provision. Transferring or shifting expenses to a subsequent year, in such cases, will not wipe out the adverse effect and the financial stress. Such could not be the intention of the Legislature. Hence, the amendment made by the Finance Act, 2010 being curative in nature is required to be given retrospective operation, i.e., from the date of insertion of the said provision. 19.5 A bare look at the extraction aforesaid makes it clear that what this Court has held as regards retrospective operation is that the amendment of the year 2010, being curative in nature, would be applicable from the date of insertion of the provision in question i.e., sub-clause (ia) of section 40(a) of the Act. This ..... X X X X Extracts X X X X X X X X Extracts X X X X
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