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Income Tax Appellate Tribunal, MUMBAI BENCH “C” MUMBAI
Before: SHRI SANDEEP GOSAIN & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
This is an appeal filed by the assessee. The relevant assessment year is 2006-07. The appeal is directed against the order passed by the Commissioner of Income Tax (Appeals)-13, Mumbai [in short ‘CIT(A)’] and arises out of assessment completed u/s 143(3) of the Income Tax Act, 1961 (the ‘Act’).
The 1st ground of appeal relates to the disallowance of Rs.20,14,932/- being the amount of premium paid for acquiring lease hold rights over a plot of land by the assessee.
The Ld. counsel of the assessee has filed a declaration u/s 158A(1) of the Act stating “we forward herewith a declaration in Form No. 8 as prescribed u/s 158A of the Income Tax Act, 1961 r.w. Rule 16 of the Income Tax Rules, 1962 vis-a-vis ground No. 1 raised in the captioned appeal viz. disallowance of amortization of premium paid for the leasehold land”. We find that the above issue has been decided by the ITAT ‘C’ Bench, Mumbai in assessee’s own case for AY 2004-05 (ITA No. 461 and 849/Mum/2009). The Tribunal held as under: “8. After hearing both the sides and in view of the decision of the Tribunal in assessee’s own case in the immediate preceding assessment year on the same issue we hold that the CIT(A) is justified in confirming the disallowance of amortization of the premium paid for leasehold land amounting to Rs.20,16,264/-. The ground raised by the assessee is accordingly dismissed.” 2.1 Facts being identical, we follow the above order of the Co-ordinate Bench in assessee’s own case and dismiss the 1st ground of appeal.
3. The 2nd ground raised in this appeal is against the ad-hoc disallowance of Rs.77,35,100/- being 5% of the expenses incurred by the appellant. The AO having gone through the tax audit report noted that the auditors have stated in clause 17(e)(i), which represents ‘the expenditure by way of penalty/fine for violation of any law for the time being in force’ as under:
“The scope of expenditure in this item, it is submitted, is such that it is not capable of being identified and/or quantified with reasonable accuracy, having regard to the volume of disbursement as also the plethora of laws, rules and regulations in India.” The AO noted that the assessee failed to furnish the details of expenditure which could establish that it had not debited any expenditure which is penal in nature. However, the AO has stated that the assessee had filed broad break up of certain expenses and details of purchases and manufacturing expenses. In absence of the details, excluding royalty of Rs.3,22,71,590/- for which details were filed and loss on sale of fixed assets of Rs.24,44,395/- which is added in computation of income, the AO disallowed on ad-hoc basis 5% of the balance amount of Rs.15,47,02,151/- which comes to Rs.77,35,100/-. 3.1 In appeal, the Ld. CIT(A) agreed with the reasons given by the AO and confirmed the disallowance. 3.2 Before us, the Ld. counsel of the assessee submits that detailed written submissions were filed before the CIT(A) and complete details of expenses were filed before the AO/CIT(A). It is further stated that the Tribunal vide its order dated 18.12.2017 in appellant’s own case for the A.Y. 2005-06 has restored the issue back to the AO for fresh adjudication. On the other hand, the Ld. DR supports the order passed by the Ld. CIT(A).
3.3 We have heard the rival submissions and perused the relevant materials on record. Similar issue arose before the ITAT ‘C’ Bench, Mumbai in assessee’s own case for AY 2005-06 (ITA No. 7055/Mum/2010). The Tribunal vide para 25 held as under: “25. We have considered rival submissions and perused materials on record. As could be seen from the observations of the assessing officer and the Commissioner (Appeals), the adhoc disallowance out of the expenditure claimed was made alleging non furnishing of relevant details by the assessee. As it appears the primary reason for which the assessing officer proceeded to disallow part of the expenditure is on the presumption that it may be of penal nature. However, without properly verifying the nature of expenditure, it cannot be assumed that certain expenditure incurred by the assessee are of penal nature. Considering the above, we are inclined to restore the issue to the file of assessing officer to examine the nature of the expenditure from the details submitted/or to be submitted by the assessee and decide the issue accordingly keeping in view the provisions of section 37(1) of the Act. This ground is allowed for statistical purposes.” Facts being identical, we set aside the order of the Ld. CIT(A) and restore the above matter to the file of the AO to examine the nature of expenditure from the details submitted/or to be submitted by the assessee and decide the issue accordingly keeping in view the provisions of section 37(1) of the Act. Thus the above ground of appeal is allowed for statistical purposes.
4. The 3rd ground raised in this appeal is against the order of the Ld. CIT(A) confirming the disallowance of Rs.92,44,636/- made by the AO u/s 40(a)(ia) of the Act.
During the course of assessment proceedings, the AO observed that though the appellant has made provision for expenses in the books of accounts but not deducted tax at source. The AO noted that even on provisions made in the books of accounts, the appellant is liable to deduct tax at source. Examining the reply filed by the assessee before him, the AO found that the details of provisions made of the expenses which are subject to TDS are legal and professional fees of Rs.49,85,368/-, recruitment charges of Rs.7,32,255/-, rent equipment of Rs.1,60,477/-, security of Rs.1,22,025/-, training and development expenses of Rs.4,60,845/-, staff welfare expenditure of Rs.27,83,666/-. The AO observed that in the above cases the parties are ascertained and therefore, the assessee should have made the tax deducted at source. Accordingly, the AO made a disallowance of Rs.92,44,636/- u/s 40(a)(ia) of the Act. 4.1 In appeal, the Ld. CIT(A) agreed with the reasons given by the AO and confirmed the above disallowance. 4.2 Before us, the Ld. counsel of the assessee refers to the relevant ledger accounts to show ad-hoc provision. Also reliance is placed by him on the decision in Aditya Birla Nuvo Ltd. v. DCIT (ITA No. 8427/Mum/2010) for the AY 2006-07, Mahindra & Mahindra Ltd. v. DCIT (2012) 24 taxmann.com 267 (Mumbai), Pfizer Ltd. v. ITO (TDS) (2012) 28 taxmann.com 17 (Mumbai). On the other hand, the Ld. DR supports the order passed by the Ld. CIT(A).
4.3 We have heard the rival submissions and perused the relevant materials on record. Similar issue arose before the ITAT in Aditya Biral Nuvo Ltd. (supra). The Bench following the decision in the case of Mahindra & Mahindra Ltd. (supra) held that the assessee had made provisions but not received the bills, that in the subsequent year the provisions made by it were offered for taxation. Therefore, it allowed the appeal filed by the assessee. In the case of Mahindra & Mahindra Ltd. (supra), it is held that TDS provisions were not applicable for the provisions made at the year end. In appellant’s own case for the A.Y. 2006-07, the Tribunal has held that “in the case under consideration, the assessee had made provisions but had not received the bills, that in the subsequent year the provisions made by it were offered for taxation. Considering these facts and following the orders of the Tribunal in the case of Mahindra & Mahindra Ltd & Industrial Development Banking Company (supra), we decide ground no 2 in favour of the assessee.” An examination of the ledger accounts indicates that these are ad- hoc provisions. Being so, following the ratio laid down in above decisions, we delete the disallowance of Rs.92,44,636/- u/s 40(a)(ia) of the Act .Thus the 3rd ground of appeal is allowed.
5. The 4th ground of appeal is against the order of the Ld. CIT(A) confirming the addition of Rs.42,33,362/- u/s 41(1) of the Act.
In response to a query raised by the AO to furnish the creditors outstanding for more than three years, the assessee filed a statement showing the details. As per it, the creditors outstanding till the date of assessment are Rs.42,33,362/-. The AO observed that the assessee did not offer any explanation why the same should not be treated as income u/s 41(1). Therefore, the AO made an addition of the above amount u/s 41(1) of the Act. 5.1 In appeal, the Ld. CIT(A) agreed with the reasons given by the AO since the assessee itself has written back in financial year 2009-10, the said credits outstanding for more than three years. 5.2 Before us, the Ld. counsel of the assessee submits that details were filed before the Ld. CIT(A) during the course of appellate proceedings. Reference is made by him to the observation made by the Ld. CIT(A) in his order that in financial year 2009-10, the assessee has written back the said credits. Also reliance is placed by him on the decision in CIT v. Bhogilal Ramjibhai Atara (2014) 43 taxmann.com 55 (Guj), CIT v. Sugauli Sugar Works (P.) Ltd. (1999) 102 Taxman 713 (SC). On the other hand, the Ld. DR supports the order passed by the Ld. CIT(A). 5.3 We have heard the rival submissions and perused the relevant materials on record. It has been categorically held in the case of Bhogilal Ramjibhai Atara (supra) by the Hon’ble Gujarat High Court that “where assessee in return of income for the assessment year 2007-08 had shown certain amount by way of his debts and Assessing Officer, applying provisions of section 41(1) added back said amount in income of assessee as deemed income, since there was nothing on record to suggest that there was remission or cessation of liability that too during assessment year 2007-08, above amount could not be added back in income of assessee.” In the instant case, there is nothing on record to suggest that there was remission or cessation of liability during the impugned assessment year. We fail to understand how the Ld. CIT(A) dismissed the above ground of appeal
, after observing at para 6.2 of the impugned order that the assessee himself in FY 2009-10 has written back the said credits outstanding for more than three years. We follow the ratio laid down in Bhogilal Ramjibhai Atara (supra) and allow the 4th ground of appeal.
6. The 5th ground raised in this appeal is against the order of the Ld. CIT(A) confirming the disallowance of depreciation claimed by the assessee on additions made during the year to the fixed assets. During the course of assessment proceedings, the AO noted that the assessee had made addition to fixed assets and claimed depreciation of Rs.93,40,242/-. In response to the notice u/s 142(1) dated 21.08.2009 issued by the AO, the assessee furnished details of addition to the fixed assets but did not furnish supporting evidence such as bills, date on which put to use etc. On verification of appendix E submitted by the assessee, the AO observed that the appellant had intimated the Excise Authority regarding loss of materials due to heavy rain and flood