Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
 
 
 
 
Popular Search: ACCOUNTING STANDARDS :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: ARTICLES ON INPUT TAX CREDIT IN VAT :: VAT Audit :: VAT RATES :: cpt :: empanelment :: articles on VAT and GST in India :: due date for vat payment :: TDS :: ACCOUNTING STANDARD :: form 3cd :: TAX RATES - GOODS TAXABLE @ 4% :: Central Excise rule to resale the machines to a new company :: list of goods taxed at 4%
 
 
From the Courts »
  Micro Spacematrix Solution P Ltd vs. ITO (ITAT Delhi)
 Micro Spacematrix Solution P Ltd vs. ITO (ITAT Delhi)
 CIT vs. Greenfield Hotels & Estates Pvt. Ltd (Bombay High Court)
 IndiaBulls Financial Services Ltd vs. DCIT (Delhi High Court)
 Maharao Bhim Singh of Kota vs. CIT (Supreme Court)
 Ravneet Takhar Vs. Commissioner Of Income Tax Ix And Ors.
 Jaiprakash Associates Ltd. Vs. Commissioner Of Income Tax
 Formula One World Championship Limited Vs. Commissioner Of Income Tax, International Taxation-3 And Anr.
 Commissioner Of Income Tax International Taxation-3 Delhi Vs. Formula One World Championship Ltd. And Anr.
 Reliance Communications Ltd vs. DDIT (ITAT Mumbai)
  Sushila Devi vs. CIT (Delhi High Court)

Assistant Commissioner of Income Tax, Circle-I, Faridabad. Vs. M/s Talbros Engineering Ltd. Plot No. 74-75, Sector-6, Faridabad.
January, 20th 2015
             IN THE INCOME TAX APPELLATE TRIBUNAL
                  DELHI BENCH : `H' : NEW DELHI

          BEFORE SH. R.S. SYAL, AM & SH. A.T. VARKEY, JM

                            ITA No. 534/Del/2009
                           Assessment Year:2005-06

     Assistant Commissioner      Vs.         M/s Talbros Engineering Ltd.
     of Income Tax, Circle-I,                Plot No. 74-75, Sector-6,
     Faridabad.                              Faridabad.
                                             (PAN:AABCT0247L)
     (Appellant)                                   (Respondent)

                             C.O. No. 25/Del/2009
                     [Arising out of ITA No. 534/Del/2009]
                           Assessment Year:2005-06

     M/s Talbros Engineering Ltd.      Vs.         Assistant Commissioner
     Plot No. 74-75, Sector-6,                     of Income Tax, Circle-I,
     Faridabad.                                    Faridabad.
     (PAN:AABCT0247L)
     (Appellant)                                   (Respondent)


                Department by: Sh. J.P. Chandrakar, Sr. DR
                Assessee by : Dr. Rakesh Gupta and Mr. Ashwani Taneja,
                               Advocates & Sh. Rajesh Talwar, M.D.

                                    ORDER

PER R.S. SYAL, AM:

        This appeal by the Revenue and Cross Objection by the assessee arise out

of the order passed by learned CIT(A) on 08.12.2008 in relation to the

assessment year 2005-06.


2.     The first ground of the Revenue's appeal is against the deletion of

addition of Rs. 1,19,93,081/- made by the Assessing Officer on account of fall in
                                                                ITA No.534/Del/2009
                                                                  CO No.25/Del/2009

G.P. rate from 18.52% in the preceding year to 15.71% during the year in

question.


3.    Briefly stated the facts of the case are that the assesses is engaged in the

manufacture of automobile parts. During the course of the assessment

proceedings finalized under section 144 of the Income-tax Act, 1961 (hereinafter

also called "the Act"), the Assessing Officer observed that the G.P. rate of the

assessee had reduced from 18.52% from the preceding year to 15.71%. On being

called upon to explain the reasons for decline in the G.P. rate, the assessee stated

that there was an increase in the prices of steel round bar during the year which

led to the decline in the gross profit rate. The Assessing Officer observed that

certain expenses forming part of the computation of the gross profit have

reduced as a percentage of sales in comparison with the preceding year. He,

therefore, refused to accept the assessee's explanation for the reduction in the

gross profit rate. Rejecting the books of account under section 145(3) of the Act,

the Assessing Officer adopted the gross profit rate of the preceding year at

18.52%. This resulted into the making of a G.P. addition of Rs. 1.19 crore. The

learned CIT(A) got convinced with the assessee's submissions and ordered for

the deletion of addition.


4.    After considering the rival submissions and perusing the relevant material

on record, it is observed that the assessee filed certain additional evidence before

the learned CIT(A), who chose to seek remand report from the Assessing

                                         2
                                                              ITA No.534/Del/2009
                                                                CO No.25/Del/2009

Officer, a copy of which is available on pages 88 to 92 of the department paper

book. Coming back to the merits of this ground, it can be seen that the Assessing

Officer has assigned no reason for rejecting the books of account other than a

decline in the gross profit rate. It is a matter of record that the assessee is

engaged in a manufacturing activity and has maintained all the stock registers

required for the purposes of the payment of excise duty. The Assessing Officer

has not controverted the quantity or value of the closing and opening inventory.

There is no dearth of judicial precedents unanimously holding that books of

account cannot be rejected on the solitary reason of decline in the gross profit

rate. Since the Assessing Officer was swayed only by the decline in the G.P. rate

to reject the books of account without anything else, we are of the considered

opinion that such an action of the Assessing Officer has no sanction of law. The

assessee has placed on record a copy of Chart, which was also filed before the

Assessing Officer to demonstrate that there has been an alarming increase in the

prices of steel round bar. For example, the rate per mt. of raw material purchased

from R.I.N.L. increased from Rs. 20,350/- in the preceding year to Rs. 26,900 in

the current year, thereby registering an increase of 32%. In the like manner,

there is increase in the rate of raw material from other parties ranging between

19% to 36%. This Chart indicates that the input costs became costly in the

instant year in comparison with the rates prevailing in the preceding year which

led to the reduction in the overall profitability. The AO has not contradicted the

contents of such chart. When we consider this factor pushing down the gross

                                        3
                                                               ITA No.534/Del/2009
                                                                 CO No.25/Del/2009

profit rate coupled with fact that the Assessing Officer has not pointed out any

mistake in the quantitative records maintained by the assessee or the value of the

closing stock, the only conclusion which in our considered opinion can be drawn

is that the books of account were properly maintained. We, therefore, hold that

the learned CIT(A) was justified in cancelling the action of the AO in rejecting

the books and resultantly deleting the addition of Rs. 1.19 crore on this score.


5.    The second ground is against the deletion of addition of Rs. 45,94,710/-

made by the Assessing Officer under Section 68 of the Act. Briefly stated the

facts of this ground are that the assessee received fixed deposits from nine

persons for a total sum of Rs. 54.75 lac. The Assessing Officer called upon the

assessee to prove the genuineness of the transactions of receipt of FDRs from

these persons with necessary evidence. The assessee filed some details and also

produced one of such depositors. In the absence of the assessee producing the

other creditors, the Assessing Officer held that the deposits amounting to Rs.

44.00 lac received from the following six persons were bogus:

      S. No.              Name of the persons                 Amount in Rs.
      1.                  Rajesh Talwar                          1,50,000/-
      2.                  Geeta Talwar                          10,00,000/-
      3.                  Rajesh Talwar HUF                      1,50,000/-
      4.                  Raghav Gupta                          10,00,000/-
      5.                  Sameer Gupta                          12,00,000/-
      6.                  Meera Gupta                            9,00,000/-
      7.                  Tushar K. Chopra                      10,00,000/-
      8.                  Tarun Talwar                             35,000/-
      9.                  Sameena Talwar                           40,000/-
                                           Total               54,75,000/-


                                         4
                                                               ITA No.534/Del/2009
                                                                 CO No.25/Del/2009

6.    The assessee had also claimed deduction in respect of interest paid on

such FDRs to its depositors. The Assessing Officer made a further addition of

Rs. 1,94,710/-, being the amount of interest paid in respect of about the six

credits. This led to the making of a total addition of Rs. 45.94 lacs. The learned

CIT(A), after considering the remand report from the Assessing Officer, got

convinced with the assessee's submissions and ordered for the deletion of

addition.


7.    After considering the rival submissions and perusing the relevant material

on record, it is observed that the Assessing Officer made addition under section

68 of the Act in respect of the above six depositors by treating them as bogus

mainly due to the failure of the assessee in producing these depositors. At the

outset, we emphasise on the duty of the assessee to comply with the

requirements of the Assessing Officer in the course of assessment proceedings.

If the Assessing Officer directs the assessee to produce the creditors, it becomes

the duty of the assessee to produce the creditors so as to establish the

genuineness of the credits to the satisfaction of the AO. This rule is not

infallible. If the assessee, pursuant to the direction of the Assessing Officer for

producing certain creditors, expresses its inability to produce the persons, but

places on record sufficient evidence to prove the genuineness of the deposits,

then the addition cannot be made under section 68 of the Act without the AO

discharging his duty to summon the creditors. Presently, we are dealing with a

situation in which the assessee intimated the AO to call these creditors at his
                                        5
                                                               ITA No.534/Del/2009
                                                                 CO No.25/Del/2009

own, which he did not and chose to make addition without rebutting the

evidence filed by the assessee. We will deal with all the six creditors one by

one.




8.     The first creditor is Sh. Rajesh Talwar, who deposited a sum of Rs. 1.50

lac with the assessee company. Page no. 401           of the paper book is his

confirmation for having deposited the said sum through a cheque drawn on

Standard Chartered Bank giving cheque number and date. This confirmation

also gives Permanent Account Number of the depositor. Not only has this

depositor filed his return of income including the interest earned from the

assessee company on the above FDRs, the assessee also furnished a copy of the

bank account of this depositor. From the pass book of this depositor, a copy of

which is available at page 34 of the paper book, it can be seen that there is a

withdrawal for a sum of Rs. 1.50 lac with the narration given in the bank

statement mentioning the name of the assessee against the amount of

withdrawal. From this pass book, it can be seen that most of the entries of

deposits and withdrawals are transactions through cheques. There is nothing of

the sort like deposit of an equal or round about sum in cash in the bank account

of the depositor before the issuance of cheque to the assessee company for the

amount of loan. Copy of return of this depositor for the year under consideration

is also available on page 435 of the paper book. The depositor also filed his Trial

balance along with the return of income which divulges the amount of FDR

made with the bank. It is not the case of the Revenue that such deposit has been

                                        6
                                                             ITA No.534/Del/2009
                                                               CO No.25/Del/2009

held as not genuine in his assessment. In view of the above overwhelming

evidence, supporting the genuineness of transaction along with the identity and

capacity of the depositor, we are of the considered opinion that the learned

CIT(A) was right in deleting this addition.

9.    Next depositor is Mrs. Gita Talwar, who deposited a sum of Rs. 10 lac

with the assessee company. A copy of her confirmation is available on page 397

of the paper book which indicates that she deposited this sum of Rs. 10 lac in

two phases, namely, Rs. 7 lac vide cheque dated 06.04.2014 and Rs. 3 lac again

vide cheque dated 14.07.2014. Her bank statement is available on pages 454 and

457 of the paper book, from which it can been seen that there are withdrawals

for the equal amounts favouring the assessee company. Here again, we find that

the deposits in her bank accounts are mostly through cheques and there is no

cash deposit in her banks accounts immediately before or close to the deposit

with the assessee company. She has also filed her return of income for the year

under consideration, a copy of which is available on page 455 of the paper book,

indicating the amount of FDR with the assessee company. Her income also

includes interest income earned from the assessee in respect of various deposits

kept by her with the assessee company from time to time. Payment vouchers

towards interest are available on pages 458 to 466 of the paper book, which

evidence the payment of interest after due deduction of tax and source. In the

light of the above evidence which were also available before the Assessing

Officer, we are satisfied that the assessee has proved the genuineness of this

                                        7
                                                              ITA No.534/Del/2009
                                                                CO No.25/Del/2009

credit. The impugned order deleting this addition is, therefore, upheld on this

score.


10.      The third creditor is Rajesh Talwar, HUF, who invested a sum of Rs. 1.50

lac in the assessee's FDRs. His confirmation is available on page 400 of the

paper book, which gives details of such deposits made through cheque on

14.07.2004. The      Permanent Account Number of this depositor along with

details of Range where it is assessed, is also given. This amount was paid

through cheque of Standard Chartered Bank. A copy of pass book evidencing

withdrawal of Rs. 1.50 lac is also available on page 445 of the paper book. Here

again, we find that most of the transactions in this bank account are through

cheques and there is no cash deposit immediately before or close to the date of

issuance of cheque in favour of the assessee. This depositor has also filed its

return of income indicating the amount invested with the assessee company,

whose copy is available on page 446 of the paper book. In view of the above

evidence, it is crystal clear that the above deposit of Rs. 1.50 lac made with the

assessee company is genuine. We, therefore, uphold the deletion of this addition

by the learned CIT(A).

11.      The next depositor is Sh. Raghav Gupta, who deposited a sum of Rs. 10

lac with the assessee company. His confirmation is available on page 405 of the

paper book from which it can be seen that he deposited the sum vide a cheque

dated 13.12.2004 drawn on Citi Bank. A perusal of the bank statement of this


                                         8
                                                              ITA No.534/Del/2009
                                                                CO No.25/Del/2009

depositor again shows that most of the transactions are through cheques and

there is no cash deposit in his bank account near the issuance of the cheque. This

depositor is also assessed to tax inasmuch as a copy of his return is available on

page 404 of the paper book. In view of the above evidence, we are satisfied that

the genuineness of the transaction of this deposit along with the identity and

capacity of the depositor, stand proved. We, therefore, uphold the impugned

order deleting this addition.


12.   The next depositor is Sh. Sameer Gupta, whose confirmation is available

on page 402 of the paper book. This deposit of Rs. 12 lac was made by him

through cheque dated 13.12.2004. A copy of his pass book is available on page

403 of the paper book, from which it can be seen that a cheque for Rs. 12 lac

was issued in favour of the assessee. Again most of the transactions in his bank

account are made through cheques and there is no cash deposit in his bank

account before making of the deposit with the assessee company. These facts

prove the genuineness of the transactions. He is also assessed to tax having filed

his return of income for the year in question indicating the amount of deposit

with the assessee company. In our considered opinion, learned CIT(A) was right

in deleting the addition on this count.


13.   The last depositor is Mrs. Meera Gupta, who deposited a sum of Rs. 9 lac

with the assessee company. Her confirmation is available on page 408 of the

paper book which indicates that the deposit of Rs. 9 lac was made by her vide


                                          9
                                                              ITA No.534/Del/2009
                                                                CO No.25/Del/2009

cheque dated 10.01.2005 drawn at Standard Chartered Bank. A copy of her pass

book indicates withdrawal of the same. Again we find that most of the

transactions in her bank account are made through cheques and there is no cash

deposit in her pass book before the transaction of making deposit with the

assessee company. A copy of her return along with TDS certificate towards

interest earned from the assessee company are also available in the paper book.

The fact of investment made with the assessee-company has been disclosed in

the documents accompany her return of income. There is nothing to indicate

that such deposit has been questioned in her assessment. In view of the above

facts, we are satisfied that the assessee has proved the genuineness of this

deposit.


14.   Once the receipt of deposits amounting to Rs. 44 lac from the above six

depositors is held to be genuine, the consequent disallowance of interest

amounting to Rs. 1,94,710/- made by the Assessing Officer would automatically

stand deleted. We, therefore, uphold the impugned order in deleting the addition

of Rs. 45.94 lacs.

15.   Ground no. 3 of the Revenue's appeal is against the deletion of addition of

Rs. 21,68,938/- on account of capital subsidy on sales tax. The facts apropos this

ground are that the assessee received a subsidy of sales tax amounting to Rs.

21,68,938/-, which was claimed as a capital receipt not chargeable to tax. On

being called upon to explain as to why this subsidy be not treated as a revenue

receipt, the assessee stated that it was given as per the scheme of the State
                                       10
                                                              ITA No.534/Del/2009
                                                                CO No.25/Del/2009

Government for encouraging the industries to set up their units in rural areas and

for compensating for the hardship in setting up such industries in remote rural

areas. The assessee explained that this sales tax subsidy was capital in nature

and hence not taxable. Rejecting the assessee's contention, the Assessing Officer

treated this amount as a revenue by relying on the judgment of the Hon'ble

Supreme Court in the case of Sahney Steel and Press Works Ltd. Vs. CIT, 228

ITR 253. The ld. CIT(A) ordered for the deletion of this addition.


16.   We have heard the rival submissions and perused the relevant material on

record. The relevant factor for decision as to whether subsidy is a capital or a

revenue receipt, is its nature and object. If some subsidy is given for

encouraging the industries for setting up units in the remote or rural areas etc.,

then such subsidy assumes the character of a capital receipt. On the other hand,

if subsidy is given for enabling an assessee to run its business more profitably,

then it would amount to an operational subsidy chargeable to tax. It is clear from

the assessee's submissions reproduced in the assessment order that the subsidy

was given to the assessee as a compensation for setting up its unit in remote

rural areas. The nature of such subsidy has not been disputed by the AO. As the

nature of subsidy in the present facts and circumstances is undisputed, being

towards the setting up of unit in remote and rural areas, the natural conclusion

which therefore follows is that this subsidy is a capital receipt and not

chargeable to tax.    The ld. DR contended that the nature of subsidy has

undergone change because of the assessee itself stating that it opted for the half
                                       11
                                                             ITA No.534/Del/2009
                                                               CO No.25/Del/2009

of the amount of the deferred sales tax by making payment for the remaining

half of the amount of the deferred tax upfront. In our considered opinion, the

exercise of option by the assessee in paying half of the amount of deferred tax

upfront thereby retaining the remaining half as subsidy, cannot convert the

otherwise capital subsidy into an item of revenue. The Special Bench of the

Tribunal in Sulzer India Ltd. Vs. DCIT, (2010) 134 TTJ (Mum.) (SB) 385 has

held that the payment of net present value against a deferred sales tax liability

cannot be considered as income under section 41(1) of the Act. This view of the

Special Bench has been recently upheld by the Hon'ble Bombay High Court

vide its judgment dated 5.12.2014, a copy of which has been made available by

the ld. AR. In view of the above forgoing discussions, we are of the considered

opinion that the learned CIT(A) was justified in treating sales tax subsidy as a

capital receipt.

17.   Ground no. 4 of the appeal is against the deletion of addition of Rs.

1062270/-. Facts of this ground are that the assessee valued its stock at cost

prise. On perusal of such valuation made by the assessee, it was noticed by the

Assessing Officer that while apportioning the expenses, the assessee has taken

72% of the power and electricity expenses as pertaining to the factory and

included the same in the direct cost of production while remaining 28% was

apportioned to the administrative block, thereby excluding the same from direct

expenses. The Assessing Officer held that 95% of electricity expenses were to

be considered as attributable to factory. He, therefore, added a sum of Rs.
                                       12
                                                              ITA No.534/Del/2009
                                                                CO No.25/Del/2009

6,12,270/- to the value of closing stock on account of this apportionment of

electricity expenses. Apart from that, he also held that 50% of Directors'

remuneration was also to be considered as part of wages for the purpose of

inclusion in the value of closing stock. As against the total remuneration paid to

the Directors during the year at Rs. 9 lac, the A.O. further attributed a sum of

Rs. 4.5 lac to the manufacturing expenses. This resulted into an addition of

Rs.10,62,270/-. The learned CIT(A) ordered for the deletion of this addition.


18.   After considering the rival submission and perusing the relevant material

on record, it is observed that the assessee was consistently apportioning

electricity expenses between factory premises and office building in the ratio of

number of employees in the works and in administration office. This practice

adopted by the assessee, has not been disturbed by the Revenue in the past. Once

a particular accounting practice is consistently followed, then there is no

rationale in disturbing the same. The finding of the learned CIT(A) in this

regard, has remained controverted by the ld. DR. The Directors' remuneration is

an item of administrative expenses and cannot be considered as a part of trading

account so as to qualify as a direct expense for the production of expenses. It is

but natural that only the expenses in the trading account, which are otherwise

direct in nature, can be considered in valuing the closing stock. No expense of

the administration nature, which falls in the Profit and loss account can be

considered for valuing the closing stock. In our considered opinion, there is no

infirmity in the impugned order deleting this addition. Even if we go with the
                                       13
                                                             ITA No.534/Del/2009
                                                               CO No.25/Del/2009

viewpoint of Revenue that the apportionment of the electricity expenses should

be made in the ratio of 95:5 and 50% of Director's remuneration be considered

towards valuation of closing stock then the opening stock would also call for

revaluation on the same pattern. Not only this, even the profitability of the

succeeding year would also be affected because the valuation of the closing

stock for this year would become the valuation of opening stock for the

succeeding year. Be that as it may, since the assessee has consistently followed

this manner of apportionment of expense for the purposes of valuing the closing

stock in the past, which has not been disputed by the AO, we see no reason to

interfere with the impugned order in sustaining the consistent practice. This

ground is not allowed.

19.   Ground No.5 of the Revenue's appeal is against the deletion of addition of

Rs.1,42,141/- made by the AO on account of Voluntary Retirement Scheme

(VRS) expenses. The assessee in its cross objection is aggrieved against the

sustenance of disallowance of Rs.1,06,210/- out of VRS expenses. The facts

apropos this issue are that the assessee claimed deduction for a sum of

Rs.7,66,108/- on account of VRS expenses.           This comprised of ¼ of

Rs.4,24,838/- pertaining to the year 2000-01 and 1/5 of Rs.30,22,473/- and

Rs.2,77,019/- pertaining to the years 2001-02 and 2002-03. The AO observed

that the deduction for the year 2000-01 was not available since section 35DDA

was inserted w.e.f. 1.4.2001.    As regards the remaining amounts, the AO

principally granting deduction at 1/5th , did not find the amount of VR expense
                                      14
                                                             ITA No.534/Del/2009
                                                               CO No.25/Del/2009

matching. He, therefore, made addition for a sum of Rs.2,48,351/- comprising

Rs.1,06,210/- for the year 2000-01 and a sum of Rs.1,42,141/- for the years

2001-02 and 2002-03 because of difference in the amount of VR expenses. The

ld. CIT(A) concurred with the AO as regards the non-availability of deduction

for the VR expenses incurred for the year 2000-01 against which the assessee

has come up in appeal before us. As regards the remaining amount, the ld.

CIT(A) observed that the amount of VR was improperly taken by the AO which

should have been as claimed by the assessee. He, therefore, deleted the addition

of Rs.1,42,141/-, against which the Revenue has come up in appeal.


20.   After considering the rival submissions and perusing the relevant material

on record, we find from the remand report that the AO has not disputed the

amount of VR expenses for the two years in respect of which the ld.CIT(A)

granted the relief. The AO simply stood by the action taken by him in the

assessment order. To view of the ld. CIT(A) in allowing the relief is, therefore,

upheld. As regards the other amount, we find that section 35DDA came to be

inserted by the Finance Act, 2001 w.e.f. 1.4.2001 providing deduction under

VRS @ 1/5 of the amount so paid in five equal installments. The claim of the

assessee for making deduction for a sum of Rs.1,06,210/- in respect of the year

2000-01 is clearly impermissible in view of section 35DDA coming into force

later on. Such expenditure assuming the character of prior period expenses for

the year in question for which the liability got crystalised and stood discharged

in the earlier year cannot be allowed as deduction in the current year. We,
                                       15
                                                             ITA No.534/Del/2009
                                                               CO No.25/Del/2009

therefore, uphold the impugned order on this score. Both the cross grounds are

dismissed.


21.   Ground No.6 of the Revenue's appeal is against the deletion of addition of

Rs.2,36,150/- on account of unascertained liability in the form of warranty

claimed.     The assessee claimed deduction for a sum of Rs.2,36,150/- as

`provision for warranty claim.' In the absence of any documentary evidence

filed before the AO, the said amount was disallowed. The ld.CIT(A) deleted

this addition by observing in para 35 of the impugned order that it was not a

provision for warranty, but, the warranty expenses actually incurred as per the

vouchers and books of account.


22.   After considering the rival submissions and perusing the relevant material

on record, we find that page 254 of the assessee's paper book is a copy of

warranty claim account. From this account, it is apparent that the last item is a

debit for a sum of Rs.2,36,150/- and, in the narration column, it has been

mentioned `being the provision'. In view of this factual scenario, it becomes

abundantly clear that the ld. CIT(A) erred in deleting this addition by

considering the amount of Rs.2.36 lac as warranty expenses actually incurred

and not as a provision. The view taken by the ld. CIT(A) is, therefore, not

sustainable.


23.   It is relevant to mention that the Hon'ble Supreme Court in the case of

Rotork Controls India (P) Ltd. Vs. CIT (2009) 314 ITR 62 (SC), has held that
                                       16
                                                                 ITA No.534/Del/2009
                                                                   CO No.25/Del/2009

the provision for warranty claims is deductible if such provision is made on a

scientific basis. There is no material available on record to demonstrate as to

how this provision of Rs.2.36 lac was created. Under such circumstances, we

set aside the impugned order and remit the matter to the file of AO for giving an

opportunity to the assessee for placing on record the basis on which this amount

of provision for warranty claims was created. If such amount of provision is

found to be based on a scientific way, then, the deduction should be allowed. In

the otherwise case, the excess amount over the appropriate amount of provision,

should be disallowed.


24.   Ground No.7 is against the deletion of addition of Rs.3,70,335/-. The

assessee claimed deduction for a sum of Rs.4,93,777/- under the head `Insurance

expenses.' On perusal of details of insurance expenses, it was noticed that the

assessee paid a sum of Rs.4.93 lac to Bajaj Alliance and General Insurance

Company Ltd., for the period 1.1.05 to 31.12.05.          By treating the amount

relatable to the year in question for the first three months at Rs.1,23,442/-, the

AO disallowed the remaining amount of Rs.3.70 lac. The ld. CIT(A) accepted

the assessee's claim that a sum of Rs.4.93 lac was not claimed as deduction by

the assessee. He, therefore, deleted the addition in entirety.


25.   After considering the rival submissions and perusing the relevant material

on record, it is observed from the assessment order that the assessee did make a

claim for deduction of insurance expenses. Not only that, the assessee also

                                         17
                                                                ITA No.534/Del/2009
                                                                  CO No.25/Del/2009

submitted before the AO, vide its reply dated 23.2.07 that the amount was paid

to Bajaj Allianz and General Insurance Company Ltd., for a Standard Fire

Policy for the calendar year 2005. When the facts are crystal clear that the

assessee did make a claim for deduction of Rs.4.93 lac, the view point of the ld.

CIT(A) cannot be accepted unless the assessee shows that no deduction was

claimed for the amount disallowed. Since necessary details were not instantly

available with the ld.AR, we are of the considered opinion that it would be in the

fitness of things if the impugned order on this issue is set aside and the matter is

restored to the file of AO for a fresh determination. If it is found that the

assessee claimed deduction for the disallowed portion of insurance expenses

then the same representing pre-paid expenses cannot be allowed as deduction in

the instant year.

26.   Ground No.8 of the Revenue's appeal is against the deletion of addition of

Rs.30,09,023/- u/s 40(a)(ia) of the Act. On going through the details of freight

and forwarding expenses, the AO found that no deduction of tax at source was

made in respect of the payments made to the following parties:-

           M/s B&R Transport Corporation                             62710
           M/s BGFC Movers (I) P. Ltd.                             250214
           M/s Golden Cargo Movers                                   49100
           M/s Kerala Transport Co.                                170578
           M/s New India Roadways                                    85552
           M/s Panal Pina World Transport                            28700
           M/s Parmoni Goods Carrier                                 33920


                                        18
                                                             ITA No.534/Del/2009
                                                               CO No.25/Del/2009

           M/s Saajan Transport Co.                               37261
           M/s Sachdeva Roadlines Pvt. Ltd.                    1270580
           M/s Southern Eastern Roadways                          72790
           M/s Southern Carrying Corporation                    616335
           M/s Western Roadlines P. Ltd.                          75277
                                                               2753023


27.   Apart from that, it was also noticed that the assessee paid a sum of

Rs.2.56 lac to M/s Millennium Offset Works for printing of various items. It

was opined that the tax was required to be deducted from this amount as it was a

printing contract. The ld. CIT(A) deleted the addition.


28.   Having heard both the sides and perused the relevant material on record

along with the remand report of the AO, it can be seen from pages 490 onwards

of the paper book that the assessee deducted tax at source from all the payments

made by it to the above parties on account of freight and forwarding. Item-wise

detail of the parties to whom freight was paid along with the amount paid, date

on which the amount was paid/credited, section and rate at which the amount of

tax was deducted and the dates on which such TDS was deposited in the

exchequer, are available. These item-wise details run from page 492 upto 552 of

the paper book. Page 554 is a certificate issued by the assessee in Form No.16A

to M/s BGFC Movers India Pvt. Ltd., for deduction of tax at source on the

freight payments made to it. Page 556 is a certificate in Form No.16A issued to

M/s Parnami Goods Carriers Pvt. Ltd. Page 558 is a copy of certificate in Form

No.16A issued to M/s New India Roadways.             In the like manner, TDS
                                       19
                                                              ITA No.534/Del/2009
                                                                CO No.25/Del/2009




certificates have been issued in respect of the parties for which the AO has made

out a case that no deduction of tax at source was made. When all these details

were forwarded to the AO in remand proceedings, he conspicuously remained

silent. In view of the fact that the assessee did deduct tax at source on the

freight payments made to the above parties and such tax was duly deposited in

the exchequer, we are of the considered opinion that the provisions of section

40(a)(ia) are not triggered.


29.   As regards non-deduction of tax at source on the amount of printing and

stationery, we find that the details of such expenses are available on pages 376

onwards of the paper book. From such details, it can be seen that these are for

purchase of printing and stationery and there is nothing like any works contract

having been carried out by the supplier. These are small amounts comprising of

purchase of papers for balance sheet, material dispatch register, tags, excise

challans and envelopes, etc. The definition of `works' under section 194C does

not include such printing and stationery expenses. We, therefore, hold that the

ld. CIT(A) was justified in deleting this addition.


30.   Ground No.9 is against the deletion of addition of Rs.23,889/- on account

of cessation of liability u/s 41 of the Act. The assessee had shown sundry

creditors amounting to Rs.3.99 crore. On perusal of details of such creditors, the

AO observed that the amounts payable to seven parties totaling to Rs.23,889/-

were more than three years old. Invoking the provisions of section 41, the AO


                                         20
                                                                ITA No.534/Del/2009
                                                                  CO No.25/Del/2009

considered this amount as cessation of liability and made the addition. The ld.

CIT(A) ordered for the deletion of this addition.

31.   After considering the rival submissions and perusing the relevant material

on record, it is noticed from the details of such amounts that some of them have

been actually written back by the assessee in the succeeding year and the other

amounts were existing liabilities not having ceased to exist. Merely because the

creditor gets more than three years old, does not ipso facto obliterate the liability

in itself. So long as the liability is payable, it cannot be considered as income.

Taking into consideration the entirety of facts and circumstances of this issue,

we are satisfied that the ld. CIT(A) was right in deleting the addition.


32.   Ground No.10 is against the deletion of addition of Rs.15,36,144/- on

account of foreign travel expenses. On perusal of total travelling expenses

incurred by the assessee, the AO observed that a sum of Rs.15.36 lac pertained

to the foreign travelling expenses incurred by the directors. Out of this total, a

sum of Rs.3.22 lac represented air tickets and Rs.12.13 lac payment of hotel

bills and boarding and lodging expenses. In the absence of sufficient details

provided by the assessee, the AO made addition of Rs.15.36 lac. The ld. CIT(A)

deleted such addition.


33.   After considering the rival submissions and perusing the relevant material

on record, it is observed that the foreign travelling expenses were incurred by

the directors of the company who visited several countries where the company

                                         21
                                                                ITA No.534/Del/2009
                                                                  CO No.25/Del/2009

was making exports for last couple of years. In support of the deduction for

expenses, the assessee also furnished copies of e-mails exchanged with the

customers abroad. The AO in the remand report chose not to adversely comment

on this evidence. In view of these facts, it is clear that such foreign travelling

expenses were incurred for the purpose of the assessee's business and there is no

warrant for making any disallowance. The impugned order is upheld on this

score.

34.      The next ground of the Revenue's appeal is against the deletion of

addition of Rs.2,84,193/- out of vehicle running and maintenance expenses @

20% for non-business purpose. The ld.CIT(A) ordered for the deletion of the

addition.


35.      After considering the rival submissions and perusing the relevant material

on record, we find that the Delhi Bench of the Tribunal in DCIT vs. Haryana

Oxygen Ltd. (2001) 76 ITD 32 (Del), has held that the company is a separate

legal entity distinct from its directors and the use of vehicles by the directors

cannot be characterized as user for non-business purpose and, hence, no addition

can be made. The Hon'ble Gujarat High Court in Sayaji Iron and Engineering

Company vs. CIT (2002) 253 ITR 749 (Guj), has held that there cannot be any

non-business user in so far as a company assessee is concerned. In view of the

above discussion, we find that the ld. CIT(A) has taken an unimpeachable view

in deleting disallowance of 20% of vehicle running and maintenance expenses

for non-business purpose. This ground is not allowed.
                                         22
                                                              ITA No.534/Del/2009
                                                                CO No.25/Del/2009


36.   Ground No.12 is against the deletion of addition of Rs.1,29,319/- made on

account of telephone expenses. The AO disallowed 20% of telephone expenses

by treating it as for non-business purpose. The ld. CIT(A) deleted the addition.

In view of the discussion made in respect of the immediately preceding ground,

we are satisfied that no infirmity can be found in the ld. CIT(A)'s order in

deleting this addition. Following the precedents noted above, we uphold the

impugned order on this score.

37.   Ground No.13 is against the deletion of addition made by the AO at the

rate of 20% of entertainment expenses. The AO made this addition by noticing

that the total entertainment expenses were incurred for meals in hotels and it was

not shown that there was any business purpose in incurring such expenses. The

ld. CIT(A) deleted this addition.


38.   After considering the rival submissions and perusing the relevant material

on record, we find that page Nos. 350-351 contain the detail of entertainment

expenses. All the payments have been made through cheques and the assessee

has mentioned the name and designation of the customer who was taken for

meals, etc. In our considered opinion, there can be no reason for sustaining this

disallowance. This ground is not allowed.


39.   Ground No.14 is against the deletion of addition of Rs.65,734/- on

account of demurrage charges. During the course of assessment proceedings, it

was noticed that the assessee debited this sum as demurrage charges.                By

                                       23
                                                               ITA No.534/Del/2009
                                                                 CO No.25/Del/2009

treating this amount as penal in nature, the AO made disallowance for the same.

The ld. CIT(A) deleted the disallowance.


40.   After considering the rival submissions and perusing the relevant material

on record, we find that this amount represents excess freight charged by a

customer M/s Mid West Truck Auto Parts, which was in turn, recovered by

bank. Complete evidence and explanation in this regard was filed before the AO

as well, who did not offer any adverse comment on the same. As this amount is

nothing, but, excess freight charges, it cannot be treated as penal in nature

warranting any disallowance in terms of Explanation 1 to section 37(1) of the

Act. This ground fails.


41.   The last ground of this appeal is against the deletion of addition of

Rs.1,29,300/- on account of sales and business promotion expenses. The AO

noticed that the sales and promotion expenses included a sum of Rs.1.95 lac

towards Sale promotions, Rs.8,855/- towards Business promotion and

Rs.82,227/- towards Gifts and articles. On perusal of the details filed by the

assessee in this regard, the AO noticed that the first and second items were in the

nature of gifts, lunch, dinner and entertainment incurred mostly in cash. One-

fourth of such expenses was disallowed. As regards the third item, he took it as

representing donations/kanyadans to the tune of Rs.32,654/- and, a further sum

of Rs.45,450/- towards gift of gold set.        These two amounts totaling to




                                        24
                                                                ITA No.534/Del/2009
                                                                  CO No.25/Del/2009

Rs.78,104/- were also added. This resulted into a total addition of Rs.1,29,300/-.

The ld. CIT(A) deleted this addition.


42.     Having heard the rival submissions and perused the relevant material on

record, we find from pages 353A onwards of the paper book that the assessee

furnished details of such expenses before the AO vide its letter dated 22.11.07.

Gold items were distributed on the occasion of Diwali festival to its customers

and complete details about the name and designation of the persons to whom

such gifts were given, has been provided in the paper book. Invoices for the

purchase of such gold items are also available on record. In so far as shaguns

are concerned, the assessee is in the practice of giving shaguns on the occasion

of girl marriage in the family of its employees. On random basis, a receipt from

the recipient along with the copy of the wedding card has also been made

available. In view of these details filed before the authorities below, we are of

the considered opinion that the ld. CIT(A) was justified in deleting the addition.


43.     In the result, the appeal of the Revenue is partly allowed for statistical

purposes and CO of the assessee is dismissed.

        The order pronounced in the open court on 19.01.2015.


              Sd/-                                             Sd/-
        [A.T. VARKEY]                                    [R.S. SYAL]
      JUDICIAL MEMBER                                ACCOUNTANT MEMBER

Dated, 19th January, 2015.

dk
                                        25
                               ITA No.534/Del/2009
                                 CO No.25/Del/2009


Copy forwarded to:
  1. Appellant
  2. Respondent
  3. CIT
  4. CIT (A)
  5. DR, ITAT

                          AR, ITAT, NEW DELHI.




                     26

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Website Ranking Website Ranking Company Website Positioning Alexa Ranking Website Promotion Website top 10 ranking website top 10 promotion search engine result promotion Strategic Internet Marketing Website Optimization Website Ranking Factors

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions