Hon’ble Supreme Court in the case of Sargam Talkies (refer to supra) clearly shows that in absence of rejection of books of account maintained by the assessee in respect of cost of construction, no addition on estimate basis can be made. In the present case, a perusal of the assessment order clearly shows that the books of account in respect of cost of construction of the lodge, Dhruva Tara has not been rejected. In the circumstances, we are of the view that in view of principle laid down by the Hon’ble Supreme Court in the case of Sargam Talkies (refer to supra), no addition is called for in the hands of the assessee. In the circumstances, the addition of Rs. 1 lakh as confirmed by the learned Commissioner of Income-tax (Appeals) stands deleted.
At the outset, what is evident is that a perusal of the order of the ld.CIT(A) shows that the ld. CIT(A) has accepted the balance sheet as filed before the bank whose finding of the ld. CIT(A) has not been challenged by the assessee. Obviously the finding of ld. CIT(A) and the balance sheet filed with the bank stands good. Once the difference found with the balance sheet filed before the bank authorities and the reconciliation of the same with the books of accounts would have to be done. How the assessee has arrived at the figures as shown in the balance sheet with the bank would have to be reconciled with the bank as maintained by the assessee. For this purpose we are of the view that the issue in this appeal must be restored to the file of AO for re-adjudication. The AO shall give assessee adequate opportunity to reconcile the difference. It is further directed that just because there is a difference addition should not be made if there are positive difference or negative which can be considered also. In the circumstances and with this direction in this appeal this issue is restored to the file of AO for re-adjudication after granting an opportunity to substantiate its claim.
It is an admitted position that the air freight is paid to the agents on the actual basis and that the bills and air freight documents have been directly issued by the foreign airlines. The agents, while accepting payments for air freight components, have acted merely as agents of the respective airlines and have not received the air freight payments in their own right. In copies of airway bills, the name of these agents is shown as ‘Issuing carrier’s agent, further the agent’s code is given as ‘Agent’s IATA code’. There is thus enough material to demonstrate that the persons having received money for the air freight have received the same in their capacity as ‘issuing carrier’s agent’, i.e., agent of the airline concerned. The air freight payment is thus made to the foreign airlines, though through the agents. Therefore, the payments cannot be said to have been made to a resident company. Accordingly, the provisions of section 194C do not come into play.
In any case, expert advice obtained by the assessee from Vakharia & Associates lacks credibility and just because the assessee’s claim is supported by a chartered accountant’s opinion, this fact per se cannot absolve the assessee from penalty under section 271(1)(c). In the case of CIT Vs Escort Finance Limited (328 ITR 44), Hon’ble Delhi High Court has rejected assessee’s reliance on expert advice to avoid the penalty
As regarding the other addition of Rs.34,82,972/- on account of Sundry creditors the ld. CIT(A) has deleted the same by relying upon the decision of the Hon’ble Apex Court in the case of CIT vs. Sugauli Sugar Works (P) Ltd. 236 ITR 518 (SC) without going into the facts of the case. In this case the assessee has not filed even the details of the sundry creditors and when the Bench asked for the list of sundry creditors outstanding since several years, the ld. Counsel for assessee has submitted that the books of account relating to A.Yr. 1981-82 are already seized by the revenue and lying with the revenue authorities till now.
Mitra Logistic Pvt. Ltd. V. ITO – There is no dispute about the fundamental posit ion that as long as the payments are for reimbursements, and not expenditure, the tax deduct ion obligations do not come into play and accordingly, disallowance u/s. 40(a)(i ) cannot be made either. In support of this proposition, our attention is invited to a coordinate bench decision in the case of Satyendra Jhunjhunwalla –vs. – ITO (ITA No. 1988/Kol. /2009; order dated 11.11.2011). He, however, fairly submits that as this aspect of the matter, i.e. payment being in the nature of reimbursement , has not been examined by the authorities below, the matter can be restored to the file of the Assessing Officer for fresh adjudication in the light of the above principle.
DIC Asia Pacific Pte Ltd vs. ADIT Article 2(1) of the applicable tax treaty provides that the taxes covered shall include tax and surcharge thereon. Once we come to the conclusion that education cess is nothing but an additional surcharge, it is only corollary thereto that the education cess will also be covered by the scope of Article 2. Accordingly, the provisions of Article 11 and 12 must find precedence over the provisions of the Income Tax Act and restrict the taxability, whether in respect of income tax or surcharge or additional surcharge – whatever name called, at the rates specified in the respective article.
The applicant’s counsel submitted that an item of income can be said to have been dealt with in an article of the Treaty only if it defines its scope as well as allocates the right to tax such income between the two Contracting States. Mere exclusion of shipping business profits from article 7 does not amount to dealing with that item of income. We find it difficult to accept this contention. Allocation of taxing right to the source State can well be done by such a process of exclusion. There is no particular manner or methodology of achieving that result.
In our considered view, this is a very important aspect of the matter inasmuch as if the assessee has incurred a loss on its entire project, whether onshore or offshore, the mere fact that the assessee has incurred a loss on onshore activities cannot be reason enough to show, or even indicate, that the value of the onshore activities was deliberately kept at a lower amount to avoid taxability in India. Of course, it could still make commercial sense that the offshore supplies are made at loss, as long as these supplies are at less than incremental costs i.e. marginal costs of offshore supplies, and thus overall losses of the assessee are minimized.
There is no need to capitalize the upfront fee for term loan in connection with the transfer of the loans from one bank to another against prepayment penalty charges paid to the existing banks to migrate from a costly 15% p.a. loan to chaper 10% p.a. loan offered by another bank.
