TMI Blog2022 (4) TMI 957X X X X Extracts X X X X X X X X Extracts X X X X ..... , in our view, since certain important aspects have not been dealt with by Ld. CIT(A) in his order and respectfully following the decision of the Hon'ble Gujarat High Court in the case of Pradyuman Patel [ 2013 (9) TMI 1286 - GUJARAT HIGH COURT] in the interests of justice, we are restoring the matter to the file of CIT(A) on the limited point to verify the correct quantum of expenditure Disallowance of amount actually expended carrying out work for FCI - HELD THAT:- Expenditure proportionate to impugned AY 2008-09 i.e. the year for consideration before us be allowed in the year FCI has finally rejected the claim of the assessee. For this purpose, the CIT(A) may carry out necessary verification as to ascertain the precise year when the claim has been finally rejected by FCI and allow deduction of proportionate expenses pertaining to AY 2008-09 in the year, when the claim has been finally rejected by FCI. On the connected issue regarding the quantum of expenditure which would be deductible in the year in which claim is finally rejected by FCI, the Ld. AR of the assessee himself has submitted that only part of the expenses of ₹ 2,51,59,561/- pertain to AY 2008-09. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In the result, we find no infirmity in the order of Ld. CIT(A) while adjudicating on this issue in favour of the assessee. Disallowance of labour charges - HELD THAT:- We are of the view that ld. CIT(A) has not erred in law or in fact in restricting the disallowance to 10% of the labour charges, especially looking into the facts that assessee employs labour for work at Railway Head, PF and ESI laws are not applicable to daily wage labour and further the ld. A.O. has also not found any material error of irregularity in the copies of ledger accounts and wages register maintained by the assessee. Disallowance u/s. 40(a)(ia) - assessee did not give names of various parties viz. transporters and their PAN Nos. and also did not furnish details of payments made to them - HELD THAT:- On the facts of the case, it is observed that the ld. CIT(A) in orders passed u/s. 271C of the Act and u/s. 201(1)/201(1A) of the Act for A.Y. 2012-13 has granted complete relief on the same set of facts. The facts of the case for the instant year have been analyzed in detail while allowing relief to the assessee for this year. Accordingly, in our view, there is no infirmity in the order of ld. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or not offering the income to tax was suspicious and contrary to established principle of law. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT (Appeals) erred in law without providing any opportunity to the Assessing Officer of being heard or by way of submission to arrive at the figure of disallowance of expenses of ₹ 2.51 crores against the claim of ₹ 5.98 Crores. 3. The appellant craves leave to add to, amend or alter the above grounds as may be deemed necessary. Relief claimed in appeal It is prayed that the order of the CIT (Appeals) be set aside and that of the Assessing Officer be restored. CO 128/Ahd/2015 (In ITA No. 1650/Ahd/2015) A.Y. 2008-09 filed by assessee 3. The assessee has raised following grounds of cross objection:- 1. Ld. CIT(A) erred in law and on facts in holding that amount actually expended carrying out work for FCI during the year of ₹ 2,51,59,561/- be disallowed. Ld. CIT(A) ought to have granted deduction of expenses incurred for fulfilling contract with FCI. It be so held now. The appellant craves leave to add, amend, edit, delete, change or modify all or any of the ground bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... offered the corresponding income for taxation. However, since the CIT(A) did not give a finding about the quantum of expenditure incurred by the assessee in respect of such supplementary claim raised on FCI, the ITAT restored back the matter to the file of CIT(A) for decision afresh in respect of disallowance of expenditure. 7. In proceeding before CIT(A) pursuant to directions of ITAT, the assessee furnished details of expenditure incurred for carrying out work in respect of aforesaid supplementary claim of ₹ 8.25 crores from FCI. The CIT(A) on going through the submissions and supporting documents held that the assessee had incurred a sum of ₹ 2,51,59,561/- in relation to claims lodged before FCI. The CIT(A) further held that per directions of ITAT these expenses be disallowed and added to the total income of the assessee for AY 2008-09 and may be allowed in later year when the claim lodged with the FCI is received and offered as income by the appellant. We shall first take up the Department's Grounds of Appeal: 8. Ground No. 1: 1. (a) On the facts and in the circumstances of the case and in law, the Ld. CIT(Appeals) erred in law in deleting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2007-08 (i.e. AY 2008-09), for which the corresponding expenses incurred were to the tune of ₹ 1,30,91,649/- and therefore expense amounting to ₹ 1,20,67,912/- could not be disallowed in this year since they did not pertain to this year and if at all, only expenses to the tune of ₹ 1,30,91,649/- could be disallowed in this year. The Ld. AR of the assessee submitted that expenses to the tune of ₹ 1,30,91,649/- may be disallowed this year and allowed in the year in which the claim before FCI has been finally rejected vide letter dated 04/08/2011 i.e. FY 2011-12. 13. We have heard the rival contentions and perused the material on record. On going through the history of the case, it is noticed that during the course of original assessment proceedings before the AO, there was no discussion on quantum of expenses having being incurred in respect of this additional claim of ₹ 8.25 crores before FCI. Also, there was no discussion as to the aspect that the claim of approximately 5.41 crores out of ₹ 8.25 crores did not pertain to assessment year 2008-09 at all, and pertained to assessment year 2007-08 and hence could not be added back to the income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n order to check the genuineness of certain investments made by some investors. The ld. CIT(A) asked the assessee to produce the investors (24 in number) and ld. CIT(A) personally took the statements of all 24 investors. Relying upon the statements of investors and without giving an opportunity to cross examine those investors to the Assessing Officer, the ld. CIT(A) deleted addition made by the Assessing Officer of ₹ 1,93,94,403/- by holding that in the statements of the investors, they have confirmed the fact of making investment in the construction project through the assessee. Consequently, the ld. CIT(A) allowed the said appeal of the assessee and deleted addition of ₹ 1,93,94,403/- made by the Assessing Officer while passing order. The Revenue preferred appeal before Ahmedabad ITAT and before ITAT the Revenue argued that the ld. CIT(A) had erred in deleting the additions made by the Assessing Officer on the basis of statements recorded without giving the Assessing Officer an opportunity to examine the statements thereby violating Rule 46A of the Income Tax Rules. The ITAT rejected the Department's submission and held that as per Sub-Rule (2) of Rule 46A, the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xercise of the powers under Sub-Rule (4) of Rule 46A, AO is required to be given an opportunity to cross-examine such witness. Unless and until the AO is given an opportunity to cross-examine such witnesses who are examined during the pendency of the appeal in exercise of the powers under Sub-Rule (4) of Rule 46A, Commissioner (Appeals) cannot rely upon the statements/depositions of such witnesses, as it would be in violation of the principles of natural justice. ...... 7.00. In view of the above and for the reasons stated above and without further entering into the merits of the case and solely on the ground that the order passed by the CIT(A) is in breach of violation of Rule 46A of the Income Tax Rules, 1962, the order passed by the CIT(A) as well as the impugned judgement and order passed by the ITAT deserve to be quashed and set aside and are accordingly quashed and set aside on the aforesaid ground alone and the matter is remanded to the CIT(A) to decide and dispose of the appeal afresh in accordance with law and on merits and after giving an opportunity to the AO to cross-examine those investors/witnesses whose statements were recorded on 27/9/2002 in presence of the CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts in holding that amount actually expended carrying out work for FCI during the year of ₹ 2,51,59,561/- be disallowed. Ld. CIT(A) ought to have granted deduction of expenses incurred for fulfilling contract with FCI. It be so held now. 17. Before us, the counsel of the assessee argued that there is no law to the effect that if no income is earned then the corresponding expenses have to be disallowed. He submitted that all expenses are supported by supported by documentary proof, which have been duly verified by ld. CIT(A) and therefore, all expenses are allowable even if no income has been earned. We are in agreement with the proposition that once the expenses are held to be genuine and have been incurred for the purpose of business of the assessee and have been correctly quantified, the same are allowable, irrespective of whether any income has been earned by the assessee. The Courts on numerous occasions have reiterated the above proposition and in fact Courts have consistently taken a position that expenditure incurred even on an 'abandoned project' is allowable, if such project is an extension of the existing business. In the case of Chemplast Sanmar Ltd. v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst the order of CIT(Appeals) dated 30.12.2014 in appeal number No. CAB/II-276/11-12 by the Revenue in which the assessee has also raised cross its objections. The grounds of appeal of the Revenue and the cross objections of the assessee are reproduced below. 21. The Revenue has raised following grounds of appeal:- 1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in: (i) deleting disallowance to the tune of ₹ 40,41,034/- by not appreciating the fact that assessee miserably failed to discharge his onus with material evidence to prove the genuineness of the sundry creditors and also erred in law in ignoring the evidence brought on record by the AO after making enquiries. (ii) (a) in deleting the addition of ₹ 3.00 crores made, being supplementary claim as income accrued during the year under consideration, in spite of the fact that assessee followed mercantile system of accounting. (b) in adjudicating the issue based on additional evidences produced during the appellate proceedings, without giving opportunity to the AO, which is in contravention with the Rule 46A of the IT Rule, 1962. (c) in not provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The brief facts in relation to these grounds and cross objection are that during the course of assessment proceedings, the AO noticed in the Notes forming part of Audit Report, that the assessee has raised claims amounting to ₹ 11.71 crores against FCI for FY 2006-07, 2007-08 and 2008-09 on account of various costs to be recovered, but since the claims were not acknowledged by FCI and recovery thereof was dependent upon FCI admitting the same, it shall be accounted as income only at the time of receipts, as the firm is not certain about its recoverability. The AO issued show cause notice as to why claim of ₹ 3 crores (₹ 11.25 crores - 8.25 crores) pertaining to AY 2009-10 lodged with the FCI during this year not be added to the total income as expenditure relatable to these claims has duly been booked in the accounts. The assessee submitted that claims of the assessee have never been admitted by FCI but in fact have been rejected vide letter dated 4th August 2011. The AO however referred to letter dated 13/14.05.2009 of the assessee to General Manager, FCI and held that on a reading of letter, the claims of assessee have not been rejected by FCI but AGM (PO) FCI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that Ld. CIT(A) gravely erred in disallowing expenses amounting to ₹ 31,64,676/- incurred for claims lodged against FCI, we are in agreement with the proposition that once the expenses are held to be genuine and have been incurred for the purpose of business of the assessee and have been correctly quantified, the same are allowable, irrespective of whether any income has been earned by the assessee. However, on similar facts we have remanded the matter back to file of CIT(A) with certain directions in the immediately preceding year, with a direction to verify the expenses after affording the AO an opportunity of cross examination, and to allow the expenses when the supplementary claim of assessee has been finally rejected by FCI. Similar directions are given for AY 2009-10 as well. 29. In the result, Cross Objection 3 of the assessee is allowed as per directions in preceding paragraphs. Ground No. 1(i) of the Department's appeal and Cross Objection No. 1 of the assessee: Bogus Sundry Creditors: 30. The brief facts in relation to Department's ground and assessee's cross objection are that the assessee had shown sundry creditors for expenses of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the other creditor M/s. Shiv Handling Agency and the assessee submitted that the assessee is having continuous stream of transactions with this party. The ld. counsel for the assessee submitted that all these details were filed before the ld. CIT(A) and ld. CIT(A) has given relief after considering all these facts. 33. We have heard the rival contentions and perused the material on record. We find that the assessee submitted that details in respect of two parties M/s. Ramkrupa Handling Company and M/s. Shiv Handling Agency before the ld. CIT(A). On going through the details furnished before ld. CIT(A) and also before us it is seen that the assessee is having transactions with these parties in the earlier years as well. The ld. CIT(A) after considering the details furnished before him deleted the addition on account of bogus creditors in respect of these two parties. We find no infirmity in the order of ld. CIT(A). It is held that the ld. CIT(A) has not erred in deleting addition to the tune of ₹ 40,41,034/- in respect of these two parties whose details were furnished before ld. CIT(A). 34. In the result, ground no. 1(i) of Department's appeal is dismissed. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directing the AO to delete the disallowance u/s. 40(a)(ia) of the I.T. Act, without appreciating the fact that the AO has rightly justified in disallowance made u/s. 40(a)(ia) of the I.T. Act. 4. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in restricting disallowance in respect of transportation payments @ 10% of total expenses instead of @ 20% determined by the AO for which the Ld. CIT(A) has not given any specific reasons nor basis of evidence. 5. The appellant craves leave to add to, amend or alter the above grounds as may be deemed necessary. Relief claimed in appeal It is prayed that the order of the CIT (Appeals) be set aside and that of the Assessing Officer be restored. Ground No. 1 Disallowance of Demurrage Charges of ₹ 58,11,850/- Disallowance of ₹ 16,06,089/- on account of Rail Transit Loss 42. The brief facts in relation to this ground of appeal are that the assessee is engaged in the business of providing transportation, cargo handling and port services to various companies like CWC, FCI etc. The assessee's job is to off load goods from trains and transport the same to the godown of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on part of the assessee on account of non-performance of contract in a timely manner. Accordingly, the ld. CIT(A), following the decision of CIT(A)-V, Vadodara in assessee's own case in A.Y. 2010-11 in CAB/05255/14-15, deleted the addition of ₹ 58,11,580/- on account of demurrage/wharfage. In respect of disallowance of ₹ 16,06,089/-, on account of transit loss, the ld. CIT(A) allowed relief to the assessee by holding that it is a contractual obligation on the assessee to compensate for loss or shortage of goods in transit. It is not penal in nature and certainly in it has not been imposed for transgression of any law. For reasons cited while allowing relief for demurrage/wharfage charges, since the payment is of a similar nature, ld. CIT(A) deleted the disallowance made by ld. A.O. 44. Before us the Ld. DR placed reliance on the observations made in the assessment order and argued that these charges are penal charges and hence not allowable under the Act. He further argued that the percentage of charges waived by the Railways has not been reduced from the claim made by the assessee. The Ld. AO gave opportunity to the assessee in this regard and he did not file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) for his perusal, who after analyzing the same concluded that on perusal of materials on record it is observed that assessee has charged demurrage/wharfage on net basis after adjusting for waiver by relevant port authorities. In the result, we find no infirmity in the order of Ld. CIT(A) while adjudicating on this issue in favour of the assessee. 46. In the result, ground no. 1 of the Revenue's appeal is dismissed. Ground No. 2 (Disallowance of ₹ 14,19,106/- out of labour charges) 47. The brief facts of this ground of appeal are that during the course of assessment, the ld. A.O. noted that the assessee had debited a sum of ₹ 70,97,031/- on account of labour charges, a majority of which was paid in cash. The assessee submitted ledger account and wages register and stated that labour had been paid based on number of days they had worked, along with overtime paid to them. The ld. A.O. however held that no material evidences were submitted by the assessee regarding statutory deduction of PF and ESI in case of the workers. The ld. A.O. held that assessee had inflated his claim of expenses and payments to workers are not completely verifiable. He therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed a sum of ₹ 99,42,970/- u/s. 40(a)(ia) of the Act on account of non-deduction of TDS. 52. In appeal before ld. CIT(A), he observed that the issue has been decided in favour of the assessee by CIT(A) in assessee's own appeal against order u/s. 271C of the Act for A.Y. 2012-13. In the aforesaid order, the ld. CIT(A) held as under:- 5.5 In view of the above discussion and the fact that there is nothing on record to suggest that there was any long term contract between the assessee and the truck owners, every GR is be treated as separate contract. Further, since the payments to a single truck operator do not exceed specified limits u/s. 194C of the Act i.e. ₹ 30,000/- per transaction and ₹ 75,000/- in aggregate during a year, it is held that the assessee was not liable to deduct tax at source u/s. 194C of the Act. Consequently, the penalty of ₹ 19,88,594/- u/s. 271C of the Act on account of assessee's alleged failure to comply with the provisions of section 194C of the Act is not sustainable in law and the same is directed to be deleted. Placing reliance on the aforesaid order, the ld. CIT(A) deleted the disallowance u/s. 40(a)(ia) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment order, the ld. CIT(A) on the above facts held that considering that the expenses are only a fraction of the turnover of the assessee and considering that it was necessary in assessee's line of business to incur cash expenses, it would be reasonable to restrict the disallowance to 10% of the expenses which comes to ₹ 9,95,317/-. 57. Before us, ld. D.R. placed reliance on the observations made by the ld. A.O. in the assessment order and argued that there was no rationale in restricting the disallowance to 10% by ld. CIT(A). The counsel for the assessee submitted that this ground has been dealt while dealing with ground no. 3 above in respect of payment made to contractors towards transportation charges. We have heard the rival contentions and perused the material on record. The Mumbai Tribunal in the case of Parsoli Corporation Ltd. v ACIT [2019] 101 taxmann.com 121 (Mumbai -Trib.), restricted the disallowance to 10% in respect of self-made vouchers as being fair and reasonable. Again, the ITAT Ahmedabad in the case of DCIT v. M/s. Unique Metropolis in ITA No. 3140/Ahd/2013 held that in view of the facts of the instant case, in the absence of supporting ev ..... X X X X Extracts X X X X X X X X Extracts X X X X
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