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Income Tax Appellate Tribunal, “A”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI AMARJIT SINGH, JM
O R D E R PER R.C.SHARMA (A.M): 2008-09) These are the cross appeals filed by the revenue and assessee against the order of CIT(A)-Mumbai, for the assessment year 2008-2009.
2 & ITA No.5249/14 2. The revenue in its appeal i.e. ITA No.1449/Mum/2012 has taken the following grounds :- • On the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting the addition on account of short term capital gain of Rs.2,18,397/- on sale of various fixed assets of the old factory other than factory building. • On the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs.1,43,629/- & Rs.2,23,944/- on account of disallowance of amount paid as freight. • On the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs.2,91,360/- on account of non deduction of TDS. • On the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting the addition on account of unproved loan of Rs.35,94,845/ - and disallowance of interest on such loan amounting to Rs.3,93,944/- at least the CIT(A) should have confirmed loans received by the assessee during the year under consideration. • On the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting the addition u/s 68 of the I T.Act on account of unconfirmed loan of Rs.9,00,000/-. • The appellant prays that the order of the Ld. CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored. The assessee in its appeal i.e.
The Ld. CIT(A) erred in confirming the addition of Rs.48,94,978/- as Short Term Capital Gain on account of sale of old factory building without appreciating the facts and circumstances of the case.
The Ld. CIT(A) failed to appreciate that the section 50 of the Income Tax Act, 1961 (hereinafter referred to Act) is not attracted to the facts of the present Appellant's case as the block of assets still continues thus, the Short Term Capital Gains are not taxable. 3. The Ld. CIT(A) erred in enhancing the income of the Appellant by disallowing the depreciation amounting to Rs.1,30,566/- without appreciating facts and circumstances of the case.
3 & ITA No.5249/14 3. Rival contentions have been heard and record perused. Facts in brief are that the assessee was engaged in the business of manufacturing in machineries for the pharmaceutical industries. Due to slow down in economy, the assessee was not having any orders in hand to be executed and therefore it sold the factory premises with a view to relocate the business to a different premises at Mumbai. For this purpose the assessee acquired 4 new premises during the year itself and till the newly acquired premises were put to use for the business of the assessee, two of the four premises were given on rent. It is contended that since the appellant had no orders in hand, being a prudent person decided to make use of the said new premises by giving out the same on rent to generate the income for the assessee. Since the old factory premises which were sold as well as the new premises were acquired, were part of the business assets only and the assessee continued its business, hence the sale value of the old factory premises was directly reduced from the block of assets instead of crediting to the P&L A/c. Hence the assessee has rightly reduced the sale value from the block of assets as provided u/s 32(1)(iii).
The AO observed that during the year under appeal, the assessee, had sold both the premises C-5 and C-11 in the M. K. Bros. Industrial Estate, Mumbai along with all the electric fittings, furniture, water tank, exhaust fans etc. for a total consideration of - 65,00,000 as per agreement dated 9/7/2007. As against the sales proceeds of 65,00,000, the assessee had apportioned 2,18,397/- against various fixed assets like 4 & ITA No.5249/14 electric fittings, air conditioner etc. and 62,81,603/- was apportioned against the office cum factory galas. At the same time during the year the assessee has acquired new premises in the form of (1) Gala No.8 at Rajprabha Mohan Indl.Estate, Vasai, (2) gala No.K-125 at Hansa JMK Indl.Cooperative Housing Society, Saki Naka, Mumbai, (3) commercial property No.504 at Dattani Plaza, Kurla West, Mumbai, and (4) a small godown cum store in a chawl at Vasai for a total consideration of Rs.1,01,17,625/-. In the block of assets of building, the assessee has shown the addition of newly acquired buildings at Rs.1,01,17,625/- and at the same time reduced Rs.62,81,503/- from the block of assets being the value of the sale price of old factory building. Thus the sale consideration. in respect of sale of old building was directly reduced from the block of assets of building without crediting to the P&L Account at all. The AO asked the assessee to give the copies of the sale and purchase agreement for the cost of acquisition of the new assets on which depreciation has been claimed. The AO after reducing the old WDV as on 1.4.2007of Rs.13,86,624/- of the old factory building from the total sale consideration of Rs.62,81,602/- of the old factory building, assessed the profit on sale of factory building of Rs.48,94,978/ - as short Term Capital Gain u/s 50 of the I T Act.
By the impugned order CIT(A) confirmed the action of the AO assessing profit on sale of building as short term capital gain. Against this order of CIT(A) assessee is in further appeal before us. We have considered rival contentions and perused the material placed on record.
5 & ITA No.5249/14 The assessee is engaged in the business of manufacturing and export of pharmaceutical machineries. During the year under consideration assessee has sold its plant and machinery forming part of block of assets of Rs.65 lakhs and further acquired new buildings at Rs.1,01,17,625/- the block in respect of building was sold was of Rs.62,81,603/- whereas new building was acquired for Rs.1,01,17,625/- which is more than the block of assets so sold, therefore no capital gain was charitable u/s 50 in respect of building. However in respect of plant and machinery for which assessee has assigned sale proceeds of Rs.2,18,397/- against which assessee had not acquired any new plant and machinery, therefore block in respect of plant and machinery did not exist. Accordingly we restrict the charging of capital gain only with respect to sale of machinery amounting to Rs.2,18,397/-as against Rs.48,94,978/- taxed by AO u/s 50. We direct accordingly.
The revenue is aggrieved for deleting the addition on account of Short term capital gain of Rs.2,18,397/- on sale of various fixed assets of the old factory other than factory building.
As we have already discussed the issue of Rs.2,18,397/- on account of sale proceeds of plant and machinery in para 5, accordingly we confirm the action of the AO for taxing Rs.2,18,397/- under short term capital gains.
Next grievance of revenue relate to disallowance of addition made on account of freight paid. From the record we found that AO has disallowed payment of freight of Rs.1,43,629/- on the plea that assessee 6 & ITA No.5249/14 had not deducted tax at source and no documentary evidence was furnished in support of expenses claimed. By the impugned order CIT(A) deleted the disallowance without controverting the findings of AO with regard to TDS having been not deducted at source. Accordingly we do not find any merit in the order of CIT(A). We set aside the order of CIT(A) and matter is restored back to his file for deciding afresh as per law. We direct accordingly.
The revenue is also aggrieved for deleting the addition of Rs.2,91,360/- on account of non deduction of TDS. We have considered rival contentions and found that AO made addition of Rs.33,600/ - on the payment made to KNS Media under the head advertising expenses on the ground that no TDS was deducted. The AO also disallowed Rs.57,250/- paid to M.K Brothers Indl. Estate on the ground that no TDS was deducted. AO further disallowed a sum Rs.38,971/- in respect of interest paid to Chunnilal D Kothari on the ground that no TDS was deducted. The AO has also made the addition of Rs.1,61,539/- paid to Welgrow Line India Pvt. Ltd. on the ground that no TDS was deducted. Accordingly the AO made disallowances u/s 40(a)(ia) in respect of 4 items of expenditure totaling to Rs.2,91,360/-.
By the impugned order CIT(A) deleted that addition after observing as under: “I have considered the above arguments of the Ld.AR. It seems that during the course of the assessment proceedings, the AO did not ask the assessee to explain as to why the TDS was not deducted on the above payments because nothing is mentioned in the assessment order whether the AO had made any such specific 7 ITA No.1449&1593/12 & ITA No.5249/14 query to the assessee nor there is mention of any reply of the assessee. The ledger accounts and the details furnished by the Ld.AR clearly shows that the above payments were not covered by TDS provisions because either they were below Rs.20000/- or they were in the nature of reimbursement expenses or the payments were made without TOS against Form No.I5-H. Hence the disallowance of four items of expenditure totaling to Rs. 291360/- for failure of TDS, is directed to be deleted.”
We have considered rival contentions and found that various payments so disallowed by AO were not liable for TDS because payments were below Rs.20,000/- or they were in the nature of reimbursement of expenses or that payments were made without TDS against Form No.15- H. Accordingly there is no infirmity in the order of ld. CIT(A) deleting the disallowance so made by AO.
Revenue is also aggrieved for deleting addition of Rs.35,94,845/- being loans received from the HUF of the partners of the assessee firm as unexplained credit and disallowance of interest of Rs.3,93,944/- paid on such loans. 13. By the impugned order CIT(A) deleted the addition after observing as under: “I have considered the above arguments of the ld. AR. In view of the factual position as stated above, there is no reason to treat the outstanding loans of Rs.35,94,845/- as unexplained cash credit in the hands of the appellant when the fresh loans received during the year is of Rs.4, 90,000/-only. The AO before drawing any adverse inference on the basis of the absence of entry in the bank account of the loans creditor did not confront the defect to the assessee which the assessee could have explained at that stage itself. Thus the addition made by the AO is only on presumption without any factual basis. Moreover, if the ledger accounts of the 2 HUFs which were also. before the AO is carefully perused then it would reveal that out of the total loan of Rs. 35,94,845/-, a sum of Rs.31,46,730/- was outstanding as opening balance which in no case could have been added as unexplained credit in the current year. The AO seems to have not applied his 8 & ITA No.5249/14 mind at all before drawing the adverse conclusion. On the other hand as mentioned above the appellant has satisfactorily explained the source of credit. Hence the addition of Rs.35,94,845/- made by the AO is without any basis and the same is directed to be deleted. Since the loans have been held to be genuine therefore the disallowance of interest of Rs.3,93,944/ - is also uncalled for and the same is directed to be deleted.”
We have considered rival contentions as per finding recorded by CIT(A) the identity, genuineness and creditworthiness of loan creditors is satisfied. Accordingly we do not find any infirmity in the order of CIT(A) deleting the addition of Rs.35,94,845/- and interest thereon amounting to Rs.3,93,944/-.
Revenue is also aggrieved by the order of CIT(A) deleting the addition of Rs.9,00,000/- made u/s 68 of the Act in respect of loan taken from Sai Arts. The ld. CIT(A) has deleted the addition after observing as under: “I have considered the above arguments of the ld. AR. From the letter dated 29.12.2010 of the assessee given to the AO during the assessment proceedings, it is clear from para 2 of the said letter that the assessee has enclosed the copy of return of income filed by the assessee. Once the assessee had given copies of computation of income showing of Rs.31 lacs for 2008-09 by M/s Shri Sai Arts, the assessee has apparently discharged its onus of proving the identity, capacity and genuineness of the loan and it is for the AO to rebut this burden by bringing on record some cogent material, which has not been done. The addition made by AO is merely on presumption without appreciating the documents already furnished before him. Hence the addition of Rs.9 lacs as unexplained cash credit is without any evidence and therefore the same is directed to be deleted.”
We have considered rival contentions and found that loan creditors have filed all documentary evidence to prove his creditworthiness. As per 9 & ITA No.5249/14 computation of income loan creditors was filing return of income at Rs.31 lacs for relevant assessment year 2008-09 under consideration. The CIT(A) after recording detailed finding at para 9.3 reached to the conclusion that assessee has discharged its onus of proving the identity, capacity and genuineness of the loan. The finding so recorded by CIT(A) are as per material on record therefore do not need any interference on our part.
Revenue is also aggrieved for deleting the addition of Rs.8,77,666/- on account of difference in purchases. 18. By the impugned order CIT(A) deleted the addition after observing as under: “10.3. I have gone through the explanation of the assessee and also ledger account of central excise receipts. From the reconciliation submitted by the appellant, it is noted that the difference of Rs.8,77,666/- is on account of excise duty on the purchases which are not included in the purchases as mentioned in the P & L A/c but debited to the Central Excise paid because in the P & L A/c. the purchases are shown excluding the excise duty on purchases, MVAT /CST paid on the purchases. The appellant follows the method as per which the purchases in the P & L A/ c are shown excluding the excise duty, MVAT, CST etc. which are debited to a separate account. Hence the mere fact that the assessee has separately debited the excise duty MVAT, CST etc. in the P & L A/c. does not lead to any adverse inference as drawn a the AO. The AO has not pointed out any other discrepancy in the assessment order to prove that the reconciliation furnished by the assessee was incorrect. In view of the factual posited as stated above by the LD.AR, there remains no discrepancy and hence the addition on account of difference in purchases of Rs.8,77,666/- is directed to be deleted.”
We have considered rival contentions and found that as per reconciliation statement submitted by assessee there was no difference.
10 & ITA No.5249/14 Accordingly CIT(A) was justified in deleting the addition after recording detailed finding at para 10.3 of its appellate order.
Revenue is also aggrieved for deleting addition of Rs.3,46,761/- on account of un recorded sales. We have considered rival contentions and found that the AO compared the sale figure as per the MVAT Audit Report net of taxes at Rs.2,96,07,153/- whereas in the P& L A/c the sales disclosed were of Rs.2,93,30,392/-. The difference was brought to tax by AO which was deleted by CIT(A) after having following observations: “I have considered the above arguments of the Ld.AR. In view reconciliation furnished, there is no difference in the sales mentioned in the P & L A/c. and MVAT Audit Report. Regarding sale of machinery for Rs. 70000/ -, it is noted that the same has been included in the sales for the purpose of MVAT but the same has not been credited in the P & L A/ c. as the value of same has been reduced directly from the block of assets which is as per the law and hence no adverse view can be taken on this issue also. Hence the addition of Rs. 3,46,761/- is directed to be deleted.”
We have considered rival contentions, as per the finding recorded CIT(A) there is no difference in the sales mentioned in the P & L A/c and MVAT Audit Report. It was also found that sale of machinery of Rs.70,000/- was also included in the sales for the purpose of MVAT. In view of the finding of CIT(A) at para no.11.3 which is as per material on record we do not find any infirmity in the order of CIT(A) for deleting addition of Rs.3,46,761/-.
Revenue is also aggrieved for deleting disallowance of Rs.7,99,476/- being 25% of various expenses. AO on adhoc basis disallowed 25% of expenses so claimed in the P&L A/c. By the impugned order CIT(A) deleted the same after observing as under :
11 & ITA No.5249/14 “I have considered the above arguments of the ld. AR. The AO has not at all denied that there is no business activity being carried by the assessee. The items of expenditure which he has disallowed are also such that they are very much required for the purpose of business. Whether an expenditure in the nature mentioned above has nexus or not have to be demonstrated by the AO. Therefore the AO has erred in saying that there is no nexus of the expenditure with the business of the assessee. Moreover the books of were duly audited. On the other hand, he has not pointed out any single item of expenditure which in his opinion was not for the purposes of business. He had made the adhoc disallowance of 25% of all items which itself suggests that the AO has not at all applied his mind. He has not pointed out specific discrepancy under any of the items disallowed by him. Such a sweeping disallowance of expenditure by the AO without even applying his mind into the nature of expenditure cannot be sustained and hence the same is directed to be deleted.”
We have considered rival contentions and found that AO has not pointed out specific discrepancy under any sale of expenses so disallowed accordingly there is no infirmity in the order of CIT(A) for deleting the adhoc disallowance so made by AO.
Revenue is also aggrieved for deleting addition of Rs.1,48,000 on account of undisclosed rent. From the record we found that the assessee has given 2 premises on rent during the year and had earned rent of Rs.1,19,OOO/-. It was noted by the AO that as per the first agreement dated 20.12.2007 the appellant was to receive a monthly rent of Rs.23,000/- whereas the second agreement dated January 10, 2010 the appellant was to receive the monthly rent of Rs.20,000/-. Accordingly the AO concluded that the assessee should have shown the monthly rent of Rs.23,000/ - for 9 months and @ 20000 for the remaining 3 months. Accordingly as per the AO the total rent which should have been received was Rs.2,67,000/- against which the assessee had shown the rent of Rs.1,19,000 only. Accordingly the difference of Rs.1 ,48,000/ - was added back to the income of the assessee.
12 & ITA No.5249/14 25. By the impugned order CIT(A) deleted the addition after observing as under: “I have considered the arguments of the ld. AR. The AO has erred in presuming that both the agreements were for the same property and also presuming that both the premises were let out for full 12 months period. The AO has not at all doubted the genuineness of the arguments. Thus it is clear from the agreement that the rent shown by the assessee in respect of property at Dattani Plaza from 20.12.2007 to 31.3.2008 @ 23000/- and for the property at Hansa JMK Indl premises form 15.1.2008 to 31.3.2008 @ 20000 per moth is correctly shown. Hence the addition made by the AO is based on wrong presumption of facts and hence the same is directed to be deleted.”
We have considered rival contentions and found that as per agreement assessee was in receipt of rent only from 20.12.2007 to 31.03.2008 @ 23,000/- per month in respect of property at Dattani Plaza, and in respect of Hansa JMK Indl premises from 15.01.08 to 31.03.08 @ of 20,000/- per month. By considering all these facts CIT(A) has recorded its finding at para 13.3 to the effect that rent shown by assessee was correct. Accordingly there is no infirmity in the order of CIT(A) for deleting addition of rent so made by the AO.
Revenue is also aggrieved for deleting addition of Rs.2,36,632/- on account of liabilities written back. We found that the AO noted that the assessee has written back liabilities of Rs.2,36,6321/- . The AO asked the assessee to furnish details of the liabilities which were written back by the assessee and the assessee vide reply dated 29.12.2010 submitted that these liabilities which have been written back were outstanding in respect of liabilities due to rate difference in foreign exchange and in respect of the export sales or due to change in the rates of excise duty after the submission of the proforma invoice. After the verification of the submissions filed, the AO concluded that the normal practice that the exchange rate will be directly debited or credited in the P & L A/ c. and hence' he rejected the reply given by the assessee and treated 13 & ITA No.5249/14 the sum of Rs.2,36,632/- as income on the ground that no proper accounting has been done.
By the impugned order CIT(A) deleted addition after observing as under: “I have considered the arguments of the Ld.AR. It is surprising to note that the AO has totally misunderstood the issue. The assessee has already offered the sum of Rs.2,36,632/ - as income by writing back the liabilities in respect of exchange difference and excise difference etc. which were shown as outstanding and payable in the opening balance of the year. Once the assessee has offered the sum as income there is no question to add the same again on grounds that no proper accounting has been done. The AO seems to have got confused between the liabilities written back and liabilities written off. The addition of Rs.2,36,632/ - made by the AO is unjustified and the same is directed to be deleted.”
We have considered rival contentions and found that assessee has already offered the sum of Rs.2,36,632/- as income by writing back the liabilities in respect of exchange difference. However AO has wrongly misunderstood the issue. Accordingly we do not find any infirmity in the order of CIT(A) for deleting addition of Rs.2,36,632/-.
Revenue is also aggrieved for deleting addition of Rs.54,814/- on account of disallowance of bonus. In this regard the AO noted that in the ledger account of liabilities written back the assessee had show a sum of Rs.54,814 / - as bonus payable and ex gratia payable. Before the AO it was explained by the assessee that the bonus payable for the previous year ending on31.3.2008 amounting to Rs.26,123/- was paid on 22.5.2008 and 24.9.2008. The AO however did not find the reply of the assessee satisfactory and hence added the same as income.
14 & ITA No.5249/14 31. By the impugned order CIT(A) deleted the same after observing as under: “I have considered the above submissions of the Ld.AR. Since the sum of Rs.54,814/- which was unpaid liabilities for the bonus and ex gratia out of the provisions created in the A.Y.2007 -08 have been now written back and offered as income by the assessee in the A.Y.2008-09, there is no reason to make the addition of the same amount again. Hence the addition of Rs.54,814/- is directed to be deleted.”
We have considered rival contentions and found that in fact assessee has offered Rs.54,814/- on account of provision of written back. Thus there was no justifiable reason for making addition. The finding recorded by CIT(A) at para 15.3 is per material on record and do not require any interference.
In the appeals so filed, assessee is also aggrieved for enhancement of income by CIT(A) amounting to Rs.1,30,566/- by disallowing claim of depreciation. 34. We have considered rival contentions and found that assessee has claimed depreciation on the block of assets. However the assets were not used and furthermore assessee has shown income from these assets under the head income from house property. Once income from asset have been shown under the head income from house property, there is no justification for claiming of deprecation with respect to the same assets. Accordingly we confirm the action of CIT(A) for directing deletion of the disallowance of depreciation of Rs.1,30,566/-, claimed by the assessee in respect of new premises so let out.
15 & ITA No.5249/14 35. In the result, appeal of the Revenue and assessee are allowed in part. Order pronounced in the open court on this 29/07/ 2016. Sd/- Sd/- (AMARJIT SINGH) (R.C.SHARMA) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER भुंफई Mumbai; ददनांक Dated 29/07/2016 Ps. Ashwini आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : अऩीराथी / The Appellant 1. प्रत्मथी / The Respondent. 2. आमकय आमुक्त(अऩीर) / The CIT(A), Mumbai. 3. आमकय आमुक्त / CIT 4. ववबागीम प्रनतननधध, आमकय अऩीरीम अधधकयण, भुंफई / DR, ITAT, Mumbai 5. आदेशाि सार/ BY ORDER, गार्ा पाईर / Guard file. 6. सत्मावऩत प्रनत //True Copy//