TMI Blog2017 (10) TMI 1559X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the assessment order and on the grounds of appeal . Per Contra, the AR invited our attention to the relevant portion of the paper book wherein a copy of sales contract with M/s Noble Resources, commercial invoice from M/s Noble Resources and invoice , Debit note issued to appellant from M/s Golden Agri International Pte Ltd, Singapore and submitted that the assessee made reimbursements only. The D R submitted since these documents are presented for the first time they require scrutiny. We heard the rival contentions. Since the relevant facts require examination, we deem it fit to set aside this issue to the A O for a fresh examination. The A O, after affording due opportunity to the assessee , shall pass a speaking order. Payments made to Chennai Port Trust without TDS - on the port Entry Pass, weighment charges, reimbursement of expenses to the port trust, the assessee pleaded before the CIT (A) that these payments do not attract TDS provisions and hence no need to deduct tax. The CIT (A) held that this is explanation is acceptable and hence the disallowances made against these amounts are directed to be deleted - HELD THAT:- Since the relevant facts require examinat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f whereas in the present assessee's case, it is very much a going concern. 2.2 The learned CIT (A) ought to have appreciated that the claim of write off of service tax set off was rightly disallowed by the Assessing Officer, as the said amounts were not offered s taxable receipts in any of the previous years. 3. For this grounds and for any other grounds including amendment that may be raised during the course of the appeal proceedings, the order of learned CIT (Appeals) may be set aside and that of the Assessing Officer be restored. 4. The following portion of the order of the CIT (A) brings the issue in detail and the assessee s submissions on it and hence extracted as under: 5. 1. 2. The appellant is a manufacturer of edible oil, which is marketed under its brand name Gold Winner'.'. Till 28-02-2005, the appellant was paying central excise on its manufactured goods and service tax on C F commission, freight, Advertisement, Repairs Maintenance, Consultancy, Telephone charges, Insurance, Storage Tank, Rents, Brokerage etc. after availing the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices, and can avail CENVAT credit only on that quantity of input or input services used in the manufacture of dutiable goods or providing taxable services_ Since the appellant is engaged in manufacture of dutiable and exempted goods, as per Rule 6(2) of the CCR it was required to maintain separate accounts, to avail service tax and CENVAT credit. Since the appellant had taken the stand that it had not used any of input services for the manufacture of the final product, directly or indirectly, it had not maintained separate accounts, as envisaged under sub-rule (2), aforesaid. This was disputed by the Service tax Department. As mentioned in para.3, the Department's view is that expenditure on Advertisement and Insurance almost entirely related only to the edible oil manufactured by the appellant and marketed under its brand name 'Goldwinner' and hence, had no relation to its C F activity. It is precisely for this reason that the Service Tax Department had issued show cause notices to the appellant (Notices NO.16 19 of 2005), proposing of withdrawal of service tax and CENVAT credit availed by it and later, passed an adjudication order accordingly. 4. Having exam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of CCR. The appellant's service tax liability is entirely on C F services. With the withdrawal of duty on edible oil, payment of duty had diminished to a large extent. It can be noticed that in FY 2006-07, the appellant had paid only a sum of ₹ 1,01,218/- on the byproducts. Only in respect of services falling u/s 6(v), credit can be availed, against duty payable on byproducts and against service tax payable on C F services. This is clearly as per the provisions of CCR and is also not disputed by the Department. As regards other items, including advertisement and insurance, credit can be availed only against duty payable on byproducts. This especially so, as per the decision of the Service tax Department and difficulty in establishing their nexus to C F services. Further, the appellant had also not maintained any separate register as per CCR. It is on this basis, the appellant had claimed the above expenditure, leaving out the undisputed and disputed portions. Further it can be seen that, since only a very small amount is paid as Excise Duty on byproducts, it is nearly impossible to avail the credit against the service tax component on items other than u/r 6(v). Theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ception of the Department on the appellant's understanding on the same, the appellant decided to claim the expenditure for the above assessment year. This was a bona fide decision taken after considering various factors discussed in the earlier paragraphs, including the opinion of the appellant's legal advisor. It is a settled law that business income has to be computed under ordinary principles of commercial accountancy, no doubt, in accordance with the provisions of Sections 28 to 44 of the IT Act. The decision to claim the expenditure in this AY was not a whimsical one as assumed by the AO, but, was on careful consideration of various factors, none of which have been found by the AO as not bonafide or arbitrary. Just because the appellant had contested the decision of the Service tax Department it does not in any way alter the position taken by the appellant, considering the other factors discussed in the previous paragraphs. Further a liability once attracted by an order passed by a Statutory Authority would not cease to be liability merely because of it is contested in appeal (Kedarnath Jute Mfg. Co. Ltd. 82 ITR 363 S.c.). Finally, in addition to the decision of the Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en examined. The submission of the assessee that the amount is written off since it is not included in the purchase cost is not acceptable for the reason that if duty is included in the purchase cost, the same has to be included in the turnover and also in the inventory in terms of provisions of section 145A. This has a neutralizing effect. The amount under consideration is statutory amount due to the assessee which can be used to set off duty payable on the finished goods. The assessee has not demonstrated as to how the cenvat credit available cannot be availed set off during the year so as to write it off. Under the circumstances, the writing off of cenvat credit does not appear to be in order, and therefore, the deduction claimed under cenvat written off is disallowed. 3. Before the Ld. CIT(A), assessee argued that the company is loosing money/credit on account of rate differential between input and output excise duty. As this phenomena is going on year after year, the incomes in the P L account were shown excess and being unrealistic. The CENVAT credit receivable which could not be set off was claimed as deduction. It was further submitted that assessee company has two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of CENVAT amounting to ₹ 35,94,577. The assessee was engaged in the business of manufacturing and trading of yarn and fibre. The yarn manufactured by the assessee was an excisable item. The assessee was paying excise duty on the raw material purchased i.e. acrylic yarn/fibre and polyester yarn/fibre. In turn, assessee was liable to pay duty on its manufactured items. The rate of excise duty payable on the raw material was higher and the assessee was depositing the excise duty in PLA account which in turn was adjustable against the excise duty payable on the finished products. The excise duty payable on the finished products was on the lower side and consequently over the period of years the assessee had credit of excise duty resulting in accumulation of CENVAT. 10. Various tests have been laid down by various High Courts and the Apex Court in relation to the allowability of expenditure under section 37(1) of the Act while computing the income from profits and gains of business or profession. In the facts of the present case, the assessee had paid CENVAT on purchase of raw material which was deposited in its PLA account for claiming the benefit of set off aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e separately recorded in the books of accounts. We find force in this argument of the assessee because while maintaining the exclusive method of accounting the assessee had a choice to increase the value of the purchases in respect of the duty paid in the form of AED NCCD. In other words, an expenditure was incurred but that expenditure could not be adjusted against the CENVAT Rules because on the finished goods, i.e. texturised yarn only the basic duty is leviable. We, therefore, hold that the amount which is now written off being part of the business expenditure, hence allowable under the provisions of the Act. In the result, we hereby reverse the findings of the authorities below and allow the ground raised by the Assessee. 7. Similar view was also taken in the case of ACIT vs. Rangoli Industrie P Ltd. ITA.No.1936/Ahd /2010 dated 11.01.2013. In the light of the above decisions on identical facts, since a view has already been taken in favour of the assessee on this issue, respectfully following that, we hereby hold that AO and Id.CIT(A) was not right in disallowing the claim. AO is directed to allow the amount as claimed, subject to assessee furnishing the details of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e s appeal in ITA No2928 /Mds/2016 for assessment year 2011-12: 10. In the assessment made for assessment year 2011-12, the AO disallowed three items of expenditures as under : (i) Disallowance u/s 14A ₹ 7,49,214/- (ii) Disallowance u/s 40(a)(ia)/40a(i) Demurrage ₹ 85,11,844/- (iii)Disallowance u/s 40(a)(ia) Payment to Port Trust - ₹ 38,27,366/- Aggrieved against that order, the assessee filed an appeal before the CIT (A) and the CIT (A) partly allowed the assessee s appeal. Against the CIT (A) order, the Revenue filed the appeal in ITA 2928 /Mds/2016 .Its grounds of appeal are extracted as under : 1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in laws. 2. The learned CIT (A) erred in deleting the disallowance of ₹ 7,49,214/- made by the Assessing Officer u/s 14A of the IT Act r.w. Rule 8D of the IT Rules 1962 for the AY 2011-12. 2.1 The learned CIT CA) is not justified in holding that the investments were made out of own funds, in the absence of materials facts supporting such a conclusion. 2.2 The learned CIT (A) having regard to the findings given by the Assessing Officer i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is exempt under the Act. However it had not made any disallowance u/s 14A. During the course of scrutiny assessment, the assessee was asked to furnish its clarification in this regard. The A.R. contended that no specific expenditure was incurred attributable to earning the dividend and therefore disallowance u/s 14A would not arise. The AO has not accepted this contention for the reason that obviously the assessee has used its office establishment as well as its staff, thus incurring some expenditure for earning this dividend income. These investments would require monitoring by the directors or senior professionals, which would certainly result in hidden cost to the company out of the overall cost incurred. Therefore, considering all of them , the AO is satisfied that disallowance u/s.14A is called for. Since the assessee has not brought out any material to show that the investments were made out of surplus and no borrowed funds were utilized for the investment, proportionate disallowance of interest not directly attributable to the earning of such dividend requires to be made and accordingly the AO disallowed ₹ 6,27,451/- under the second limb of Rule 8D and ₹ 6,27,4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowed u/s.40a(i) , it contended that since they are reimbursements made to those parties in respect of demurrage paid by the shippers, they will not attract the provisions of section 40a(i). The AO has not accepted the assessee's contention, as it is held in the decision of CIT v Orient (GOA) P Ltd (Bom) 325 ITR 554 that demurrage paid by Indian Company to foreign company without TDS attracts disallowance u/s.40a(i). Accordingly, the AO disallowed them u/s 40a(i) / 40a(ia) . 12.1 The CIT (A) after considering the assessee s submissions in this regard held that the appellant itself has not paid the demurrage charges and it only made reimbursement of the expenditure incurred by the foreign companies. In the case law relied on by the AO viz., CIT v. Orient (Goa) P Ltd. (Bom) 325 ITR 554, it has been held that demurrage paid by Indian Company to foreign company without TDS attracts disallowance u/s.40(a)(i). Whereas in the case of the appellant, the fact is different inasmuch as it is only reimbursement and not demurrage payment and hence the action of the AO is untenable and hence the CIT (A) directed the AO to delete the disallowance and allowed the assessee s appeal. 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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