THE ACIT, CIRCLE-2(2),, BARODA vs. SHRI PRADEEPSHANKAR B. JHA, BARODA

The Revenue has raised following grounds of appeal:- “1. (a) On the facts and in the circumstances of the case and in law, the Ld. CIT( Appeals) erred in law in deleting the addition of Rs. 8.25 crores made by Assessing Officer without appreciating that the assessee is following mercantile system of accounting and the income was taxable on accrual basis. (b) The Ld. CIT(A) has erred in not appreciating that reason given by the assessee for 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 Rs. 2.51 crores against the claim of Rs. 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.”

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 Rs. 2,51, 59, 561/- be

The brief facts of the case are that the assessee is in the business of handling and transportation contractor of FCI and Central Warehousing Corporation. 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 Rs. 8.25 crores on FCI 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 in the assessment order dated 27-12-2010 held that since assessee has already debited Rs. 5,98,66,942/- under the head current liabilities following mercantile system of accounting under FCI, the whole amount of Rs. 8,25,00,000/- deserves to be treated as income of the current year.

In appeal before CIT(Appeals), the CIT(A) asked the assessee to specify the expenses relating to supplementary claim of Rs. 8.25 crores, in response to which the assessee submitted that it was not practically possible to segregate cost pertaining to this claim of Rs. 8.25 crores from FCI. The CIT(A) held that in absence of assessee providing any fair estimate of expenditure, since the assessee has earned loss of Rs. 83.87 lakhs on turnover of Rs. 19.73 crores, it can be safely said that expenditure equals

In appeal against the order of CIT(A), the ITAT vide order dated 25/02/2014 for AY 2008-09 noted that deletion of Rs. 8.25 crores as income of current year by CIT(A) has not been challenged by the Department in their cross appeal and therefore this issue has attained finality. Regarding, the disallowance of expenditure of Rs. 8.25 crores, the ITAT held that CIT(A) was justified in making the disallowance of the expenditure since the assessee has himself not 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.

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 Rs. 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 Rs. 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

Ground No. 1:

Before us the Department has submitted that it would not be pressing Ground number 1 relating to deletion of Rs. 8.25 crores by the CIT(A) in respect of estimated receipts from FCI.

In the result, Ground No.1 of the Departmental Appeal is being dismissed as not pressed.

Regarding Ground Number 2, the DR submitted that the CIT(A) while accepting the quantum of expenditure at Rs. 2,51,59,561/-, did not give any opportunity to the assessing officer to verify whether the expenses were in fact occurred. The DR pointed out that at the time of original proceedings before CIT(A), the assessee had submitted that it was not practically possible to bifurcate the expenses specifically incurred in respect of the supplementary claim of Rs. 8.25 crores with FCI and therefore, in the entire exercise of quantification of expenses before CIT(A) post direction of ITAT, the AO should have been afforded an opportunity to verify the genuineness of claim, when the matter was remanded by the Hon’ble ITAT for adjudication.

The AR of the assessee in response submitted that there is no law to the effect that if no income is generated, expenses are to be disallowed. In the instant case, expenditure incurred is duly supported by documentary evidences. The AR of the assessee submitted that details of all the expenses incurred were submitted before CIT(A) supported by evidences, which were duly analyzed and appreciated by Ld. CIT(A). The AR further submitted that from the CIT(A) order, it may be seen a sum of Rs. 5,41,02,853/- was claimed from FCI in FY 2006-07, for which the corresponding expenses incurred were to the tune of Rs. 1,20,67,912/- and a sum of Rs. 2,83,64,018/- was claimed from FCI in FY 2007-08 (i.e. AY 2008-09), for which the corresponding expenses incurred were to the tune of Rs. 1,30,91,649/- and

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 Rs. 8.25 crores before FCI. Also, there was no discussion as to the aspect that the claim of approximately 5.41 crores out of Rs. 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 this year. In fact, the AO in the assessment order observed that Notes forming part of the Audit Report read “the firm has raised claims amounting to Rs. 8.25 crores (approximately) during the year against FCI on account of various costs to be recovered and other claims” There is apparently no year-wise bifurcation of claims asserted before the AO for his consideration. During the course of appellate proceedings before first appellate authority, the assessee submitted that it was not possible for it to practically segregate the expenses related to this supplementary claim of Rs. 8.25 crores. Accordingly, the CIT(A), estimated the expenses incurred in respect of the supplementary claim at Rs. 8.25 crores. Before, ITAT, again the aspect that a portion of the claim before FCI amounting to Rs. 5.41

Now, in the instant set of facts, certain decisive facts were not adjudicated upon by CIT(A) in the remand proceedings viz. the correct proportionate amount of expenditure relatable to the impugned assessment year i.e. AY 2008-09, and the corresponding amount which needs to be allowed for this year in subsequent year and the quantum which is relatable to preceding financial year 2007-08. Neither has the issue of bifurcation of income between AY 2007-08 and AY 2008-09 been discussed with CIT(A) in his order. The assessee placed additional evidences and supporting documents in support of its claim of expenditure before the CIT(Appeals) for the first time, in respect of which no opportunity was given to Ld. AO for verification. The Ld CITA(A) disallowed the entire expenditure though the AR of the assessee has averred before us that part of the expenses could not been disallowed since they did not pertain to the instant year. Therefore, 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 supra, 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 relatable to AY 2008-09 after affording opportunity to the Assessing Officer for carrying out necessary verification.

Accordingly, Ground No.2 of Department appeal is being allowed and matter restored to file of CIT(A) with specific directions as cited in preceding paragraph.

The assessee has raised the following cross objection:

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. ACIT [2018]

The Cross objection No. 1 of the assessee is allowed as per directions in the preceding paragraphs.

In the result, appeal of the Revenue is partly allowed and the Cross objection of the assessee is allowed as per directions given above.

This is an appeal against 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.

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 Rs.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.

The assessee has raised following grounds of cross objection:-

It is noted that since on similar facts, the Department has not pressed this ground for the immediately preceding year, this ground is hereby dismissed as not pressed.

In the result, Ground No. 1(ii)(a) of the Department’s appeal is being dismissed

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 Rs. 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 Rs. 3 crores (Rs. 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 forwarded bills to Competent Authority for approval. The AO in the assessment order held that similar claim put forth in AY 2008-09 has been rejected by the then AO in order dated 27/12/2010, and therefore

In the immediately preceding year AY 2008-09, we have remanded the case back to the file of Ld. CIT(A) to verify the veracity of expenses after giving due opportunity, to the AO, to work out the correct proportionate quantum of expenses pertaining to year under consideration which is to be to be disallowed and to allow the same when the claim of the assessee has been finally rejected by FCI. Further, since details of expenses

In the result, Grounds Numbers 1(ii) (b) and 1(ii) (c) of the Department are allowed.

On the cross objection no. 3 filed by the assessee, which is to the effect that Ld. CIT (A) gravely erred in disallowing expenses amounting to Rs. 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.

In the result, Cross Objection 3 of the assessee is allowed as per directions in preceding paragraphs.

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 Rs. 18,13,109/- and other creditors of Rs. 75,94,977/-. To verify genuineness of the creditors, the Assessing Officer issued notice u/s. 133(6) of the Act to 17 parties but the notice to five parties were returned with the remarks “not known” and in respect of 4 creditors, no replies were filed and in the case of 5 parties there was difference in balances as compared to assessee’s books. No confirmations were furnished by assessee in response to opportunity granted by Assessing Officer and it was held that such creditors are bogus and the amount shown in their names aggregating to Rs. 46,76,898/- was brought to tax in the hands of the assessee.

In appeal before ld. CIT(A), the assessee submitted details in respect of two parties. Ld. CIT(A) observed that on going through supporting evidences it is noticed that assessee had carried out business with both the parties in the earlier years. On verification of the ledger accounts, it is noticed that there were transactions through bank for payment of outstanding amounts. Further, the outstanding balances of both the parties are reflected in the balance sheet as on 31-03-2009. The ld. CIT(A) deleted the additions in respect of these two creditors amounting to Rs. 40,41,034/- by relying upon the decisions of Gujarat High Court in the case of CIT vs. Hitin S. Garg (2012) 208 taxman 16 Gujarat, CIT vs. Purdevi (2014) 221 taxman 375 (Gujarat) and CIT vs. Bhogilal (2014) 222 taxman 313 (Gujarat)

Before us, the ld. Departmental Representative placed reliance on the observations of the ld. Assessing Officer in the assessment order that the assessee has not been able to establish the genuineness of these parties. The ld. counsel for the assessee placed reliance on the case of Gujarat High Court in the case of CIT vs. Bhogilal 43 taxman.com 55 and Dattratray Poultry Breeding Farm (P) Ltd. 415 ITR 407 (Gujarat High Court). The ld. counsel for the assessee drew our attention to pages 45 to 48 of the paper book to the effect that one of the parties M/s. Ramkrupa Handling Company is having continuous transactions with the assessee for several years. He also drew our attention to pages 53 to 54 of the paper books which is a ledger account 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.

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

In the result, ground no. 1(i) of Department’s appeal is dismissed.

Further, since the assessee did not furnish any details in respect of balance creditors before the ld. CIT(A), in our view, the ld. CIT(A) has not erred in confirming the addition in respect of balance sundry creditors with respect to whom details have not been furnished by the assessee. In the result, the cross objection of the assessee is dismissed.

In the result, both Ground No. 1(i) of the Department and Cross Objection No. 1 of the assessee are dismissed.

Before us the Ld. Counsel for the assessee submitted that he would not be pressing Cross Objection No. 2. Accordingly, the same is being dismissed as not pressed.

In the result, Cross Objection No. 2 of the assessee is dismissed.

Cross Objection No. 4 and 5 of the assessee relating to levy of interest u/s 234A, 234B & 234C of the Act and initiation of penalty proceedings u/s 271 (1)(c) of the Act are general in nature and do not require any specific adjudication.

This is an appeal by the Department against the order of the commissioner of Income Tax (Appeal)-V Baroda, Appeal No. CAB/05- 158/2015-16 dated 22-09-2016.

The Department has raised the following ground of appeal:-

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 its principals. During the course of assessment proceedings, the ld. A.O. noted that the assessee had debited a sum of Rs. 58,11,850/- as

In appeal before the ld. CIT(A), the ld. CIT(A) held that from the facts, it is observed that the assessee has charged demurrage/wharfage charges on net basis and not on gross basis as stated by the AO, after adjusting for waiver by the relevant rail/port authority. Therefore, the

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 any details to prove that only net charges were claimed as expense. Further, Ld. CIT(A) granted relief to the assessee without asking for any remand report and without affording any opportunity to the assessee

We have heard the rival contentions and perused the material on record. The issue for consideration in this case are twofold. First, whether demurrage/wharfage charges are penal in nature and hence not allowable under the Act or they are in the nature of compensation paid to the other parties for violation of the terms of the contract and Secondly, whether the assessee has claimed the net amount of demurrage/ wharfage charges after reducing the charges waived by the Principals. On the first issue, the Mumbai ITAT in the case of Imcola Exports Ltd. in ITA No. 974/Mum/2009, following the Delhi High Court decision in the case of Mahalaxmi Sugar Mills Company Ltd. 157 ITR 683 (Del) have held that demurrage is a charge by way of compensation and includes amount chargeable for failure to storage and transport goods by contractor for its delayed clearance. It is not a fine paid to the port authorities for any criminal act but is a compensation for the use of port facilities beyond the free period allowed under the rules. Demurrage charges are charged not for any infraction or violation of law but on account of commercial failure of the contractor. The Kolkata Tribunal in the case of Ripley & Co.Ltd. [2017] 88 taxmann.com 747 (Kolkata - Trib.) held that demurrage paid by assessee for its failure to complete work within prescribed time allotted by principal was allowable deduction under section 37(1) of the Act. In view of the above rulings, we are of the considered view that ld. CIT(A) has not erred in law and in facts in deleting the addition of Rs. 58,11,850/- on account of

In the result, ground no. 1 of the Revenue’s appeal is dismissed.

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 Rs. 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 therefore disallowed a sum of Rs. 14,19,406/- being 20% of total labour charges of Rs. 70,97,031/- and added the same to the total

Before us, the ld. DR submitted the observations made by the ld. A.O. to the effect that majority of the payment were made in cash and the claim of labour expenses are not verifiable. Accordingly, he submitted that ld. CIT(A) erred in restricting the disallowance to 10% of expenditure. In response, Counsel for the assessee reiterated the arguments placed before ld. CIT(A) to the effect that all wages registers were submitted before A.O. and he has not found any material error or irregularity. Further, no PF /ESI was deducted since the above labour charges were outside the purview of PF/ESI laws.

We have heard the rival contentions and perused the material on record. Looking to the facts and circumstances of the case, 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.

In the result, ground no. 2 of the appeal of the Revenue is dismissed.

The brief fact of this ground are that during the course of assessment proceedings, the assessee was requested to give party-wise particulars in respect of disallowance u/s. 40(a)(ia) of the Act. The ld. A.O. noted that the 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. In absence of details of payment/credit of transportation charges, the ld. A.O. disallowed a sum of Rs. 99,42,970/- u/s. 40(a)(ia) of the Act on account of non-deduction of TDS.

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:-

Before us, the ld. DR took us through the observation made by the A.O. at page no. 6 of the assessment order and submitted that no details were furnished by the assessee before ld. CIT(A) and ld. CIT(A) while granting relief to the assessee simply relied on the 271C order of CIT(A) for A.Y. 2012-13. The ld. CIT(A) while granting relief did not call for details of expenditure and did not allow opportunity to A.O. to verify the details. In response, the ld. counsel for the assessee drew our attention to page 65 of the paper book and pointed out that ld.CIT(A)-V, Vadodara gave complete relief to the assessee in order u/s. 271C of the Act and the detailed facts of the assessee’s case have been analyzed and discussed in the 271C order, while passing the order. Further, ld. counsel for the assessee drew our attention to appellate order u/s. 201(1)/201(1A) of the Act for A.Y. 2012-13 at pages 74 to 79 of the paper book wherein the CIT(A) on the same set of facts deleted interest u/s. 201(1)/201(1A) of the Act.

We have heard the rival contentions and perused the material on record. On the facts of the case, it is observed that the ld. CIT(A) in orders

In the result, ground no. 3 of appeal of the Department is dismissed.

The brief facts in relation to this ground of appeal is that during the course of assessment proceedings, the ld. A.O. noted that the assessee had debited a sum of Rs. 99,53,170/- on account of transportation charges, a majority of which was paid in cash through self made vouchers. The ld. A.O. held that since most of the expenses were paid in cash, PAN of the payees were not mentioned, most of the vouchers were self made and the expenses were not verifiable, the ld. A.O. disallowed 20% of the expenses on adhoc basis, making addition of Rs. 19,90,634/- to assessee’s total income. In appeal against 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 Rs. 9,95,317/-.

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 evidences, genuineness of payment made in cash is not established and therefore disallowance upheld by the ld. CIT(A) at 10% of total cash expenses is found to be quite reasonable and justified. In our view the ld. CIT(A) has not erred in disallowing a sum of 10% of total cash expenses amounting to Rs. 2,62,053/-. In our view, looking into the nature of business of the assessee where expenses constitutes a vital part of expenses in this line, the necessity of payment in cash purpose of carrying out the business, the ld. CIT(A) has not erred in law or in fact in restricting the disallowance to 10% of the expenditure.

In the result, ground no. 4 of Revenue ‘s appeal is dismissed.

In the result, the appeal of the Revenue is dismissed.