Daawat Foods Ltd. Vs ACIT (ITAT Delhi)
As far as the disallowance of the depreciation of Rs.93,406/-on the capital expenditure is concerned, we find that AO has disallowed the depreciation on the capital expenditure of Rs.5,35,468/- which has been stated to have been incurred by the assessee in cash. We find that the Co-ordinate Bench of Tribunal in the case of Kansi Ram Madan Lal vs. ITO (supra), the Co-ordinate Bench of Tribunal has held that the provision of Section 40A(3) are not attracted in the case of capital expenditure.In view of these facts, we hold that AO was not justified in disallowing the depreciation of Rs.93,406/- u/s 40A(3) of the Act.
FULL TEXT OF THE ITAT JUDGEMENT
Both the appeals filed by the assessee are directed against the order dated 28.03.2013 of the Commissioner of Income Tax (A)-XXXIII, New Delhi relating to Assessment Years 2007-08 & 2008-09.
2. The relevant facts as culled from the material on records are as under:
3. Assessee is a company stated to be engaged in the business of manufacturing of rice and sale and purchase thereof. Assessee filed its original return of income for AY 2007-08 on 31.10.2007 declaring loss of Rs.10,86,965/-. The return of income was initially processed u/s 143(1) on 14.02.2009 at Nil income. Thereafter, a search u/s 132 of the Act was carried out in Daawat Group of cases including the assessee on 10.2.2009. Notice u/s 153A dated 07.10.2009 was served on assessee requiring the assessee to file the return of income with 16 days of the service of the aforesaid notice and in response to which assessee filed return of income on 11.12.2009 declaring the loss at Rs.10,86,965/-. The case was taken up for scrutiny and thereafter, vide order dated 19.8.2011 passed u/s 153A the total taxable income was determined at Rs. 58,30,841/-
4. As far as A.Y. 2008-09 is concerned, Assessee had filed the original return of income on 30.09.2008 declaring loss of Rs.2,82,80,689/- which was initially processed u/s 143(1) of the Act. Thereafter in view of the search u/s 132 conducted in the case of assessee, notice u/s 153A dated 07.10.2009 was served on the assessee on 19.10.2009 requiring the assessee to file the return of income within 16 days of the service of the notice. In response of notice u/s 153A of the Act, assessee filed return of income on 11.12.2009 declaring loss of Rs.2,82,80,689/-. Subsequently, assessment was framed u/s 153A vide order dated 19.08.2011 and the total loss was determined at Rs. 1,87,63,172/-.
5. Aggrieved by the aforesaid orders of AO, assessee carried the matter before CIT(A) who vide order dated 28.03.2013 (Appeal No. 32/11-12/717) for A.Y. 2007-08 and Appeal No. (33/11-12/718) for A.Y. 2008-09 granted partial relief to the assessee. Aggrieved by the orders of CIT(A), assessee is now in appeal before us and has raised the following grounds of appeal in ITA No.4157/Del/2013 For A.Y. 2007-08:
“1. That the search conducted under Section 132 is illegal, bad in law and without jurisdiction and the assessment made U/s 153A is also bad in law and without jurisdiction.
2. That the notice under section 153A is illegal, bad in law and without jurisdiction and subsequently order passed U/s 153A is also illegal, bad in law and without jurisdiction.
3. That reference to special audit under section 142(2A) is illegal and bad in law and the report submitted by the special auditor is illegal, bad in law and without jurisdiction.
4. That the special auditor has erred on facts and in law in scrutinizing and auditing those issues which are not part of the terms of reference and has exceeded his jurisdiction in making observations about those issues in th audit report submitted.
5. That in the absence of any incriminating material found during search, the additions made by the AO while completing assessment U/s 153A rws 143(3) are unjust, arbitrary and bad in law and without jurisdiction.
6. That the assessment for relevant Assessment Year was not pending at the time of search hence the same was not abated, as such assessment made U/s 153A and addition are illegal, bad in law and without jurisdiction.
7. That in view of the facts and circumstances of the case and in law the A.O. has erred in completing the assessment U/s 153A when there is no seized material pertaining to this year. The additions made are unjust, unlawful, bad in law, without jurisdiction and are also highly excessive.
Addition on account of personal expenses
8. That in view of the facts and circumstances of the case and in law the A.O. has erred in holding that an amount of Rs. 2,49,650/- is in nature of personal expense and thereby disallowing the same and CIT(A) has also erred in upholding the same.
Addition of Rs. 9.588/- on account of expenditure on towards printing of MOA being of capital nature
9. That, in view of the facts and circumstances of the case and in law the A.O. has erred in law and on facts in holding that the amount of Rs. 9,588/- spent towards printing of memorandum of article is capital expenditure in nature and not a revenue expenditure and CIT(A) has erred in law and on facts in upholding the same.
10. That the explanations given, evidence produced and material placed and made available on record have not been properly considered and judicially interpreted and the same do not justify the addition made.
11. That the addition/disallowance made is based on mere surmises conjunctures and the same cannot be justified by any material on record is highly excessive.
12. That the interest u/s 234A, 234B, 234C and 234D has been wrongly and” illegally charged as there is no delay in filling of return and there is no default of payment of Advance tax as the receipt / income is liable to TDS and it could not have anticipated such additions. In any case the interest charged has been wrongly worked out and is excessive.
13. That all the above grounds are independent to each other and mutually exclusive.
14. The Appellant craves leave to add, amend, alter and/or delete any of the above grounds of appeal at or before the time of hearing.”
6. The grounds raised for AY 2008-09 in ITA No. 4158/Del/2013 reads as under:
“1. That the search conducted under Section 132 is illegal, bad in law and without jurisdiction and the assessment made U/s 153A is also bad in law and without jurisdiction.
2. That the notice under section 153A is illegal, bad in law and without jurisdiction and subsequently order passed U/s 153A is also illegal, bad in law and without jurisdiction.
3. That reference to special audit under section 142(2A) is illegal and bad in law and the report submitted by the special auditor is illegal, bad in law and without jurisdiction.
4. That the special auditor has erred on facts and in law in scrutinizing and auditing those issues which are not part of the terms of reference and has exceeded his jurisdiction in making observations about those issues in the audit report submitted.
5. That in the absence of any incriminating material found during search, the additions made by the AO while completing assessment U/s 153A r.w.s 143(3) are unjust, arbitrary, and bad in law and without jurisdiction.
6. That the assessment for relevant Assessment Year was not pending at the time of search hence the same was not abated, as such assessment made U/s 153 A and addition are illegal, bad in law and without jurisdiction.
7. That in view of the facts and circumstances of the case and in law the A.O. has erred in completing the assessment U/s 153A at a loss of Rs. 1,87,63,172/- as against returned loss of Rs. 2,82,80,689/- when there is no seized material pertaining to this year. The additions made are unjust, unlawful, bad in law, without jurisdiction and are also highly excessive.
Disallowance of Payment in Contravention of Section 40A(3)
8. That, in view of the facts and circumstances of the case and in law, the A.O. and subsequently CIT(A) has erred in law and on facts in holding that the assessee has made cash payments to various concern which are to be disallowed U/s 40A(3) of the Act.
9. That, in view of the facts and circumstances of the case, the A.O. and subsequently CIT(A) has failed to appreciate that payment of Rs. 8,64,464/- is made out of commercial expediency and is allowable expenditure.
10. That A.O., in view of the facts and circumstances of the case, has erred in law and on facts in disallow sum of Rs. 1,70,501/- U/s 40A(3) paid as freight and CIT(A) has erred in law and on facts in upholding the same. The CIT(A) has failed to appreciate that payment is made out of commercial expediency and is allowable expenditure
Addition on account of personal expenses
11. That in view of the facts and circumstances of the case and in law the A.O^ has erred in holding that an amount of Rs. 20,680/- is in nature of personal expense and thereby disallowing the same and CIT(A) has also erred in upholding the same.
Addition on account of disallowance of additional depreciation
12. That in view of the facts and circumstances of the case and in law the A.O./CIT(A) has erred in law and on facts in confirming an addition on account of disallowance of additional depreciation on plant and machinery.
Disallowance of expenses on account of Non-Deduction and Short-Deduction of TDS
13. That CIT(A), in view of the facts and circumstances of the case, has erred in law and on facts in only allowing the part relief in respect of disallowance made U/s 40(a)(ia) by the AO. The CIT(A) should have deleted the entire addition/disallowance on this account.
14. Without prejudice to the above, the CIT(A), in view of the facts and circumstances of the case, has erred in law and on facts in holding that where TDS has been deducted at lesser rate the disallowance U/s 40(a)(ia) of the Act is required to be made. The CIT(A) has failed to appreciate that no disallowance U/s 40(a)(ia) of the Act is required to be made where TDS has been deducted at lesser rate.
15. That CIT(A) in view of the facts and circumstances of the case, has erred in law and on facts in upholding the addition/disallowance U/s 40(a)(ia) on account of freight charges paid to various/ different truck owner. The CIT(A) has also failed to appreciate that provision of Section 194C are not applicable to such payment and no TDS is required to be made payment.
16. That CIT(A) has failed to appreciate that the provision of Section 40(a)(ia) are not applicable in respect of disallowances made y disallowance are unjust, unlawful and without any legal basis.
17. That the explanations given, evidence produced and material placed and made available on record have not been properly considered and judicially interpreted and the same do not justify the addition made.
18. That the addition/disallowance made is based on mere surmises and conjunctures and the same cannot be justified by any material on record and is highly excessive.
19. That all the above grounds are independent to each other and mutually exclusive.
20. The Appellant craves leave to add, amend, alter and/or delete any of the grounds of appeal at or before the time of hearing.”
7. We first proceed to decide the quantum appeal in appeal No 4157/Del/2013 for AY 2007-08.
8. Before us, the Ld. AR at the outset submitted that the assessee does not wish to press Ground Nos. 1 to 4 and 9 to 11. In view of the aforesaid submissions of the Ld. AR, these grounds are dismissed as not pressed.
9. In Ground No 5 to 7, assessee is challenging the assessment framed u/s 153A and the additions made therein
10. Before us, Ld. AR submitted that search operation u/s 132 of the Act was undertaken in Daawat Group of cases including the assessee in 10.02.2009. Pursuant to the search conducted in the case of assessee, the AO issued notice u/s 153A on 07.10.2009 asking the assessee to file the return of income and in response to which assessee filed the return of income on 11.12.2009 declaring loss of Rs.10,86,965/-. He submitted that in pursuance of the notice u/s 153A, the regular assessment proceedings u/s 143(3) stood abated. He submitted that the AO proceeded to make various additions/disallowances in respect of which no incriminating material was found during the course of search by merely relying on the finding of the special auditor. He submitted that assessment u/s 153A of the Act can be made only on the basis of seized material found during the course of search and any addition made de-hors any material/document found during the course of search is clearly outside the scope of proceedings u/s 153A of the Act. He therefore submitted that the action of the AO in passing the impugned order is without jurisdiction, illegal and bad in law. Ld DR on the other hand supported the order of lower authorities.
11. We have heard the rival submissions and perused the material on record. In the present ground, assessee is challenging the assessment proceedings and the additions made thereat.
12. It is an undisputed fact that search u/s 132 of the Act has taken place at the premises of the Assessee on 10.02.2009 and on that date the assessment for A.Y. 2007-08 was pending and therefore as per the provisions of Section 153A, the assessment for A.Y. 2007-08 stood abated and in such a situation the total income of the assessee for that assessment year will have to be computed by the AO as a fresh exercise. We find that Hon’ble Delhi High Court in the case of Kabul Chawla [2016] 380 ITR 573 (Del) has observed as under:
“Summary of the legal position
37. On a conspectus of section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under :
(i) Once a search takes place under section 132 of the Act, notice under section 153A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six assessment years immediately preceding the previous year relevant to the assessment year in which the search takes place.
(ii) Assessments and reassessments pending on the date of the search shall abate. The total income for such assessment years will have to be computed by the Assessing Officers as a fresh exercise.
(iii) The Assessing Officer will exercise normal assessment powers in respect of the six years previous to the relevant assessment year in which the search takes place. The Assessing Officer has the power to assess and reassess the “total income” of the aforementioned six years in separate assessment orders for each of the six years. In other words, there will be only one assessment order in respect of each of the six assessment years “in which both the disclosed and the undisclosed income would be brought to tax”.
(iv) Although section 153A does not say that additions should be strictly made on the basis of evidence found in the course of thie search, or other post-search material or information available with the Assessing Officer which can be related to the evidence found, it does not mean that the assessment “can be arbitrary or made without any relevance or nexus with the seized material. Obviously, an assessment has to be made under this section only on the basis of the seized material.”
(v) In the absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word “assess” in section 153A is relatable to abated pro ceedings (i.e., those pending on the date of search) and the word “reassess” to the completed assessment proceedings.
(vi) In so far as the pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under section 153A merges into one. Only one assessment shall be made separately for each assessment year on the basis of the findings of the search and any other material existing or brought on the record of the Assessing Officer.
(vii) Completed assessments can be interfered with by the Assessing Officer while making the assessment under section 153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.”
13. In the light of the aforesaid decision of Hon’ble jurisdictional high Court we find that since it is on undisputed fact that assessment for the year had abated and in such a situation, as per the mandate of the provisions of the Act, the AO is required to compute the total income as a fresh exercise. In such a situation we find no reason to interfere with the order of CIT(A) and thus the grounds of Assessee are dismissed.
14. We now proceed with Ground No. 8 which is with respect to disallowance of personal expenses amounting to Rs. 2,49,650/-.
15. AO on examination of the P&L account noted that assessee had debited Rs.2,61,306/- being expenses incurred by Shri Abhinav Arora, one of the director of the company. The assessee was asked to furnish the complete details of the expenses. AO noted that expense vouchers were not filed by the assessee. He was therefore of the view that in the absence of supporting evidence for the incurring of expenses, the same cannot be allowed. He also noted that the Special Auditor in his report has observed that Rs. 11,655/- was incurred on account of foreign travelling of family members of the Directors for which no proper explanation was provided. He therefore, proceeded to disallow the aggregate expense of Rs. 2,49,650/-. When the matter was carried before CIT(A), he confirmed the action of AO. Aggrieved by the order of CIT(A), assessee is now before us.
16. Before us, Ld. AR submitted that the expenses of Rs.2,49,650 was incurred for travel and tour of Shri Abhinav Arora and Vijay Arora who are the Directors of the assessee, the expenses incurred are wholly and exclusively for the purpose of the day to day running of the business. He further submitted that the allegation of the AO that the assessee did not file the requisite documentary evidence is factually incorrect as during the course of assessment proceedings the assessee had filed complete details alongwith supporting evidence and in support of which he pointed to the copy of letter and documents submitted before AO and the copy of which is placed in page 116 of the paper book. With respect to the expense of Rs. 11,655/-, he submitted that it was incurred towards visa processing fees of Shri Abhinav Arora, the Director of the assessee. He further submitted that assessee being a company, an artificial jurisdictional person and therefore, there cannot be a question of incurring of any personal expenses. He further submitted that identical disallowance was made in the case of L. T. foods Ltd, a group company of the assessee and when the matter travelled before the Co-ordinate Bench of Tribunal, the issue was decided in Assessee’s favour (ITA No. 4164/Del/2013 order dated 30.09.2020). He pointed to the relevant findings of the Tribunal. He therefore, submitted that the expenses were allowable u/s 37 of the Act and the disallowance deserves to be deleted. Ld DR on the other hand supported the orders of the lower authorities.
17. We have heard the rival submissions and perused the material available on record. The issue in the present ground is with respect to disallowance of expenses of Rs. 2,49,650/-. These expenses have been disallowed for the reason that the assessee did not substantiate the nature of expenses and did not file the required details. Before us, Ld. AR has pointed to the details that have been filed by the assessee before the AO. The submissions of these details have not been controverted by the Revenue. Further Ld. AR has pointed to the fact that the expenses have been incurred for the travelling (including related foreign travel) expenses of the Directors and have been incurred for the purpose of the business of the assessee. These submissions have not been controverted by Revenue. Considering the totality of the aforesaid facts and the submissions of Ld. AR, we are of the view that the disallowance of expenses was not called for in the present case. We therefore, direct its disallowance. Thus this ground of assessee is allowed.
18. Ground No. 12 is with respect to levy of interest u/s 234A. 234B, 234C and 234D.
19. Before us, Ld AR submitted that the AO issued notice u/s 153A dated 07.10.2009 asking the assessee to file the return of income within 16 days of the service of the aforesaid notice. The notice was received by the assessee on 19.10.2009 and in compliance of which assessee vide letter dated 04.11.2009 (i.e. within the time period allowed) requested the AO to provide additional time for filing the return of income as it was in the process of compilation of necessary information/ details. He submitted that the aforesaid request was not rejected by the AO and thereafter, the assessee filed the return of income on 11.12.2009. He submitted that since assessee has duly complied with the return was filed within the time sought for from AO, no interest u/s 234A was leviable. He therefore, submitted that the AO erred in computing the interest u/s 234A and in the alternate interest u/s 234A should have been levied only for the period of delay in filing return pursuant to notice u/s 153A of the Act which was for one month of delay in filing the return of income. Ld DR on the other hand supported the order of lower authorities and submitted that the interest being mandatory, it has been rightly levied by the AO.
20. We have heard the rival submissions and perused the material available on record. The issue in the present case is about the levy of interest u/s 234A.
21. A reading of section 234A makes it clear that in the case of an assessee who has filed the return, but filed the return after the ‘due date’ stipulated in the notice under section 142, the date reckoning for interest to be charged under this section ends on the date of furnishing the return, in case the return is furnished after the due date.
22. In the present case, it is an undisputed fact that notice u/s 153A was issued to the assessee on 07.10.2009 directing the assessee to file the return of income within 16 days of the service of the aforesaid notice. It is the contention of the assessee that the aforesaid notice was served on the assessee on 19.10.2009.
The 16 days period to file the return of income expired on 04.11.2009 but the return of income was filed on 11.12.2009. The contention before us is that the assessee vide letter dated 04.11.2009 requested the AO to provide additional time to file the return and the said application of the assessee has not been rejected by the AO but at the same time it is also a fact that there is nothing on record to demonstrate that the AO, in response to the aforesaid request of the assessee had extended the time for filing the return of income. In such a situation we are of the view that there has been delay on the part of the assessee in filing the return of income and that the assessee was liable for payment of interest u/s 234A from immediately following the due date i.e. 20.10.2009. We finding no infirmity in the order of AO and thus the ground of appeal of the assessee is dismissed.
23. Thus the appeal of the assessee is partly allowed.
24. Now we take up Appeal in ITA No.4158/Del/2013 for A.Y. 2008-09.
25. Before us, at the outset, the Ld AR submitted that assessee does not wish to press Ground Nos.1 to 4 and 11. In view of the aforesaid submission of Ld AR, those grounds are dismissed as not pressed.
26. He further submitted that Grounds Nos.5 to 7 are identical and similar to the Grounds Nos. 5 to 7 raised in A.Y. 2007-08. In view of the aforesaid submission of Ld AR, we for the reasons similar to that given while deciding the appeal of the assessee for A.Y. 2007-08 and for similar reasons dismiss those grounds.
27. We now take Ground Nos. 8 to 10 which are with respect to disallowance made u/s 40A(3) of the Act.
28. AO on the basis of the observations of the Special Auditor in the Special Audit report noted that assessee has made payments in excess of Rs. 20,000 in cash thereby contravening the provisions of Section 40A(3) of the Act and the aggregate of such payments was Rs. 12,73,792 (the details of which are as under:)
