The ACIT, Circle-8, Ahmedabad V. Transformers & Rectifiers (India) Ltd., Ahmedabad

ITA 952/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 85641 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 18-12-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 31-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T P KRISHNA KUMAR
• Assessee Lawyers: SANJAY MAJMUDAR
• Keywords: Capital asset; Depreciation; Earning of tax free income; Commercial expediency
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD .., , BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ./ I.T.A. NO.952/AHD/2011 ( / ASSESSMENT YEAR : 2007-08) ACIT CIRCLE-8 AHMEDABAD / VS. M/S.TRANSFORMERS & RECTIFIERS (INDIA) LTD. SUR.NO.344-350, OPP.PWD STORES SARKHE- BAVLA HIGHWAY VILLAGE CHANGODAR, TAL.SANAND DIST.AHMEDABAD-382 213 ./ ./ PAN/GIR NO. : AACCT 8243 P ( # / APPELLANT ) .. ( $% # / RESPONDENT ) #& / APPELLANT BY : SHRI T.P.KRISHNA KUMAR,CIT-DR $% #'& / RESPONDENT BY : SHRI SANJAY MAJMUDAR, AR ()'* / DATE OF HEARING 18/12/2014 +,-.'* / DATE OF PRONOUNCEMENT 23/01/2015 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD.COMMISSIONER OF INCOME TAX(APPEALS)-XIV, AHMEDAB AD (CIT(A) ITA NO.952 /AHD /2011 ACIT VS. M/S.TRANSFORMERS & RECTIFIERS (INDIA) LT D. ASST.YEAR 2007-08 - 2 - IN SHORT) DATED 24/01/2011 PERTAINING TO ASSESSMEN T YEAR (AY) 2007-08. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL:- [1] THE LD.CIT(A)-XIV, AHMEDABAD ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.1,81,50,813/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF LOSS DUE TO FLOOD WHICH OCCUR RED IN THE MONTH OF AUGUST, 2006. [2] THE LD.CIT(A) HAS ERRED AND ON FACTS IN RESTRI CTING THE DISALLOWANCE OF RS.8,53,917/- MADE BY THE ASSESSING OFFICER TO THE EXTENT OF RS.42,423/- U/S.14A OF THE ACT. [3] THE LD.CIT(A) HAS ERRED AND ON FACTS IN DELETI NG THE DISALLOWANCE OF RS.5,08,11,590/- MADE BY THE ASSESSING OFFICER O N ACCOUNT OF LATE DELIVERY CHARGES DEBITED BY THE ASSESSEE. [4] THE LD.CIT(A) HAS ERRED AND ON FACTS IN DELETI NG THE DISALLOWANCE OF EXPENDITURE OF RS.30,73,341/- COVERED U/S.40A(2) (A) OF THE ACT. [5] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD.COMMISSIONER OF INCOME-TAX(A)-XIV, AHMEDABAD OUG HT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. [6] IT IS THEREFORE, PRAYED THAT THE ORDER OF THE L D.COMMISSIONER OF INCOME-TAX(A)-XIV, AHMEDABAD MAY BE SET-ASIDE AND T HAT OF THE ASSESSING OFFICER BE RESTORED. 2. BRIEFLY STATED FACTS ARE THAT THE CASE OF THE A SSESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S.143( 3) OF THE INCOME TAX ACT,1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRAMED VIDE ORDER DATED 31/12/2009, THEREBY THE ASSESSING OFFICER (AO IN SHORT) DISALLOWED THE LOSS CLAIMED ON ACCOUNT OF FLOOD AMO UNTING TO RS.1,81,50,813/-, DISALLOWANCE U/S.14A OF THE ACT A MOUNTING TO ITA NO.952 /AHD /2011 ACIT VS. M/S.TRANSFORMERS & RECTIFIERS (INDIA) LT D. ASST.YEAR 2007-08 - 3 - RS.8,53,917/- AND DISALLOWANCE OF EXPENSES RELATABL E TO INCREASE IN SHARE CAPITAL AMOUNTING TO RS.7,33,000/-. APART FROM TH IS, AO MADE DISALLOWANCE OF EXPENSES RELATED TO LAND/TRANSFER O F PROPERTY OF RS.26,000/-, DISALLOWANCE OF INWARD CLEARING EXPENS ES PAID TOWARDS CAPITAL ASSETS OF RS.51,764/-, DISALLOWANCE OF LATE DELIVERY CHARGES OF RS.5,08,11,590/-, DISALLOWANCE OF EXPENDITURE COVER ED U/S.40A(2)(A) OF RS.30,73,341/-, DISALLOWANCE U/S.40A(IA) OF RS.30,7 36/- AND DISALLOWANCE OF DEPRECIATION WRONGLY CLAIMED OF RS.58,835/-. AG AINST THIS, THE ASSESSEE FILED AN APPEAL BEFORE THE LD.CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE PARTLY ALLOWED THE APPE AL. WHILE ALLOWING THE APPEAL, THE LD.CIT(A) DELETED THE DISALLOWANCE OF RS.1,81,50,813/- MADE BY THE AO ON ACCOUNT OF LOSS DUE TO FLOOD. TH E LD.CIT(A) RESTRICTED THE DISALLOWANCE MADE BY THE AO REDUCED FROM RS.8,53,917/- TO RS.42,423/- BY INVOKING THE PROVISIONS OF SECTIO N 14A OF THE ACT. THE LD.CIT(A) DELETED THE DISALLOWANCE OF LATE DELIVERY CHARGES AMOUNTING TO RS.5,08,11,590/- AND ALSO DELETED THE DISALLOWANCE OF EXPENDITURE OF RS.30,70,341/- COVERED U/S.40A(2)(A) OF THE ACT. A GAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. 3. FIRST GROUND RELATED TO THE DELETION OF DISALLOW ANCE OF RS.1,81,50,813/- MADE BY THE AO ON ACCOUNT OF LOSS DUE TO FLOOD. THE CIT-DR SHRI T.P.KRISHNAKUMAR VEHEMENTLY ARGUED THAT THE LD.CIT(A) WAS NOT JUSTIFIED IN DELETING THE DISALLOWANCE. HE SUBMITTED THAT THE AO ITA NO.952 /AHD /2011 ACIT VS. M/S.TRANSFORMERS & RECTIFIERS (INDIA) LT D. ASST.YEAR 2007-08 - 4 - HAS GIVEN A FINDING THAT THE ASSESSEE ITSELF WAS NO T SURE ABOUT THE EXACT QUANTUM OF LOSS SUFFERED. HE FURTHER SUBMITTED T HAT THE LOSS WAS NOT ASCERTAINED BY THE SURVEYOR OF THE INSURANCE COMPAN Y. THE LD.CIT-DR SUBMITTED THAT THE ASSESSEE INITIALLY CLAIMED LOSS OF RS.6,89,04,655/- AND, LATER ON, REVISED THEIR FINAL CLAIM TO RS.5,12,40,1 58/- AS AGAINST THE ASSESSEES CLAIM OF RS.5,82,21,109/- AS CLAIMED IN THE RETURN. HE SUBMITTED THAT THE AO HAS GIVEN FINDING THAT THE SA LVAGE VALUE AFTER TENDERING PROCESS WAS OF RS.1,67,12,388/- AS AGAINS T THE CLAIM OF THE ASSESSEE ON THE ESTIMATE BASIS OF RS.1,84,68,000/- IN THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION. IT WAS ALSO POIN TED OUT BY THE AO THAT CLAIM OF THE ASSESSEE INCLUDED THE AMOUNT OF RS.33, 97,704/- RELATED TO THE EXTENSIVE REPAIR WORKS TAKEN FOR DAMAGED CAPITAL AS SETS AFTER THE FLOOD. HE SUBMITTED THAT UNDER THESE FACTS, THE AO WAS JUS TIFIED IN HOLDING THAT THE ACTION OF THE ASSESSEE FOR MAKING THE CLAIM IS PRE-MATURE ACTION AND TAKEN IN HASTE BY THE ASSESSEE TO REDUCE THE TAXABL E PROFIT FOR THE YEAR UNDER CONSIDERATION. THUS, AN AMOUNT OF RS.1,81,50 ,813/- IS DISALLOWED BY THE AO AND ADDED BACK TO THE INCOME OF THE ASSES SEE. ON THE CONTRARY, LD.COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDER OF LD.CIT(A) AND SUBMITTED THAT THERE IS NO DISPUTE WITH REGARD TO F ACT THAT THE ASSESSEE SUFFERED LOSS ON ACCOUNT OF FLOOD DURING THE YEAR U NDER CONSIDERATION, HE SUBMITTED THAT THE ASSESSEE MADE CLAIM IN ACCORDANC E WITH PRESCRIBED ACCOUNTING STANDARDS. HE REITERATED THE SUBMISSION S AS WERE MADE BEFORE THE LD.CIT(A). HE SUBMITTED THAT THE AO WAS NOT JU STIFIED IN REJECTING ITA NO.952 /AHD /2011 ACIT VS. M/S.TRANSFORMERS & RECTIFIERS (INDIA) LT D. ASST.YEAR 2007-08 - 5 - THE CLAIM MERELY ON THE BASIS THAT THE CLAIM BEING PRE-MATURE. HE SUBMITTED THAT THE SURVEYORS ASSESSED THE CLAIM ON THE BASIS OF THEIR OWN METHODOLOGY, BUT THE ASSESSEE HAS SUFFERED LOSSES A ND IN VIEW OF THE FACT THAT THE VOLUME OF DAMAGES OCCURRED AND LOSS SUFFER ED AND THE EXACT QUANTIFICATION OF LOSS COULD NOT BE MADE. THEREFOR E, THERE WERE SOME MODIFICATIONS IN THE CLAIM MADE BEFORE THE INSURANC E COMPANY BY THE ASSESSEE. HE SUBMITTED THAT THIS SHOULD NOT BE THE GROUND FOR THROWING OUT THE ASSESSEE. HE FURTHER SUBMITTED THAT WHEREV ER THE ADDITIONAL INSURANCE CLAIM REASONED BY THE ASSESSEE-COMPANY WA S OFFERED FOR TAXATION. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IN THE INSTANT CASE, ALLOWABILITY OF LOSS CAUSED IS NOT IN DISPUTE, HOWEVER IN THE YEAR IN WHICH SUCH LOSS CAN BE ALLOWED IS IN DISPUTE. THE AOS OBJECTION IS THAT THE CLAIM OF THE ASSESSEE IS PRE- MATURE AS THE LIABILITY WHAT THE LOSS IS NOT YET ASCERTAINED AS THE SURVEYO RS ASCERTAINED THE EXACT QUANTUM OF LOSS. HOWEVER, THE CONTENTION OF THE AS SESSEE IS THAT IT HAS BEEN FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND HAS CLAIMED AS PER THE PRESCRIBED ACCOUNTING STANDARDS. IT IS ALSO TH E SUBMISSION OF THE ASSESSEE THAT AS AND WHEN THE CLAIM IS SETTLED BY T HE INSURANCE COMPANY WHICH WOULD OFFER THE SAME AS INCOME OF THAT YEAR. THE ASSESSEE HAS PLACED RELIANCE ON THE JUDGEMENT OF THE HONBLE SUP REME COURT RENDERED ITA NO.952 /AHD /2011 ACIT VS. M/S.TRANSFORMERS & RECTIFIERS (INDIA) LT D. ASST.YEAR 2007-08 - 6 - IN THE CASE OF BHARAT EARTH MOVERS VS. CIT REPORTED AT 245 ITR 428 (SC), WHEREIN THE HONBLE APEX COURT HAS HELD THAT IF A B USINESS LIABILITY HAS DEFINITELY ARISEN IN THE ACCOUNTING YEAR, THE DEDUC TION SHOULD BE ALLOWED ALTHOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AN D DISCHARGED AT A FUTURE DATE. WHAT SHOULD BE CERTAIN IS THE INCURRI NG OF THE LIABILITY. IT SHOULD ALSO BE CAPABLE OF BEING ESTIMATED WITH REAS ONABLE CERTAINTY THOUGH THE ACTUAL QUANTIFICATION MAY NOT BE POSSIBL E. IF THESE REQUIREMENTS ARE SATISFIED THE LIABILITY IS NOT A C ONTINGENT ONE. THE LIABILITY IS IN PRAESENTI THOUGH IT WILL BE DISCHAR GED AT A FUTURE DATE. IT DOES NOT MAKE ANY DIFFERENCE IF THE FUTURE DATE ON WHICH THE LIABILITY SHALL HAVE TO BE DISCHARGED IS NOT CERTAIN. WE FI ND THAT THE LD.CIT(A) HAS OBSERVED THAT THE ASSESSEE FOLLOWED THE PRINCIP LE AND SIGNED IN THE NOTIFIED ACCOUNTING STANDARDS. THEREFORE, THE ASSE SSEE CLAIMED LOSS DUE TO FLOOD, ON MERCANTILE BASIS IN THE YEAR IN WHICH THE SAID LOSS (LIABILITY) HAD ARISEN. WE ALSO FIND THAT THE AO HAS DISALLOWE D THE CLAIM ON THE BASIS THAT THE EXTENT OF DAMAGES DUE TO FLOOD WAS N OT ASCERTAINABLE IN THE ASSESSMENT YEAR UNDER CONSIDERATION. IT IS NOT IN DISPUTE THAT LOSS HAS OCCURRED DURING THE YEAR UNDER CONSIDERATION, HOWEV ER THE DISPUTE IS THAT THE LOSS AND QUANTIFICATION THEREOF ARE NOT ASCERTA INABLE IN THE YEAR UNDER CONSIDERATION. WE DO NOT AGREE WITH THIS REA SONING OF AO IN REJECTING THE CLAIM IN VIEW OF THE PRINCIPLE LAID D OWN BY THE HONBLE APEX COURT IN THE CASE OF BHARAT EARTH MOVERS VS. C IT REPORTED AT 245 ITR 428 (SC). THUS, THIS GROUND OF REVENUES APPEA L IS REJECTED. ITA NO.952 /AHD /2011 ACIT VS. M/S.TRANSFORMERS & RECTIFIERS (INDIA) LT D. ASST.YEAR 2007-08 - 7 - 5. GROUND NO.2 IS AGAINST IN RESTRICTING THE DISALL OWANCE OF RS.8,53,917/- MADE BY THE AO TO THE EXTENT OF RS.42 ,423/- U/S.14A OF THE ACT BY THE LD.CIT(A). THE LD.CIT-DR SUBMITTED THAT THE LD.CIT(A) GROSSLY ERRED IN RESTRICTING THE DISALLOWANCE. HE FURTHER SUPPORTED THE ORDER OF THE AO. 5.1. ON THE CONTRARY, THE LD.COUNSEL FOR THE ASSESS EE SUPPORTED THE ORDER OF THE LD.CIT(A) AND REITERATED THE SUBMISSIONS MAD E BEFORE HIM. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSE D THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. WE FIND THAT THE AO OBSERVED IN THE ASSESSMENT ORDER THAT T HE ASSESSEE HAS INCURRED INTEREST OF RS.5,25,15,064/- AND THE YEAR END INVESTMENT STANDS RS.1,79,69,000/-. THE ASSESSEE-COMPANY IS IN RECEI PT OF EXEMPT INCOME. THE AO APPLYING THE RULE 8D MADE DISALLOWANCE IN RE SPECT OF THE INTEREST EXPENDITURE AMOUNTING TO RS.8,11,495/- AND TOWARDS ADMINISTRATIVE EXPENSES AMOUNTING TO RS.42,423/-. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AO WAS NOT JUSTIFIE D IN APPLYING THE RULE8D WHEN IT HAS BEEN HELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG.CO.LTD. VS. DY.CIT & ANR . REPORTED AT (2010) 328 ITR 81(BOM) WOULD BE APPLICABLE W.E.F. A Y 2008-09. SO FAR AS THE APPLICABILITY OF RULE8D IS CONCERNED, THE IS SUE IS NO MORE RES INTEGRA . SINCE NOW IT IS SETTLED THAT THE RULE 8D WOULD BE APPLICABLE W.E.F. AY 2008-09, THEREFORE WE DO NOT FIND ANY INF IRMITY IN THE ORDER OF ITA NO.952 /AHD /2011 ACIT VS. M/S.TRANSFORMERS & RECTIFIERS (INDIA) LT D. ASST.YEAR 2007-08 - 8 - THE LD.CIT(A) GIVING THE FINDING THAT RULE8D WOULD APPLY FROM AY 2008-09. IN RESPECT OF THE INTEREST EXPENDITURE, T HE CONTENTION OF THE ASSESSEE BEFORE THE LD.CIT(A) WAS THAT THE TOTAL IN VESTMENT MADE BY THE ASSESSEE-COMPANY IN SHARES OF M/S.TRANSPARES LIMITE D AND M/S.TRANSWELD ENGINEERING WORKS PVT.LTD. WAS RS.169 .81 LACS. IT WAS CONTENTED THAT THE TOTAL CONSIDERATION PAYABLE HAS BEEN PAID/DISCHARGED BY ISSUE OF SHARES OF TRANSFORMERS AND RECTIFIERS (INDIA) LTD. FOR CONSIDERATION OTHER THAN CASH AMOUNTING TO RS.1,30, 60,000/- AND AMOUNT PAYABLE TO MR.KANTILAL MAMTORA WAS RS.36,37,500/- W HICH WAS OUTSTANDING AND PAYABLE (AS ON 31.03.2007) TO MR.K ANTILAL MAMTORA. IT WAS CONTENTED THAT A SMALL AMOUNT OF RS.2.84 LACS H AS BEEN PAID BY WAY OF CASH CONSIDERATION AND BULK OF THE PAYMENT HAS B EEN MADE BY ISSUE OF FRESH SHARES OF THE COMPANY FOR CONSIDERATION OTHER THAN CASH. BY IMPLICATION THERE IS ABSOLUTELY NO INVOLVEMENT OF A NY BORROWED FUNDS FOR THE PURPOSE OF MAKING INVESTMENT AND THUS THERE IS NO DIRECT OR INDIRECT INVOLVEMENT OF ANY EXPENDITURE WHICH HAS BEEN INCUR RED TO EARN THE EXEMPT DIVIDEND INCOME. WE FIND THAT THE LD.CIT(A) HAS GIVEN A FINDING THAT THE ASSESSEE HAS BEEN ABLE TO ESTABLISH THIS F ACT FROM ITS ACCOUNT THAT NO PORTION OF INTEREST BEARING-FUNDS WERE UTILIZED BY THE APPLICANT IN MAKING THE AFORESAID INVESTMENTS AND, THEREFORE, TH E APPLICANT HAS NOT REALLY INCURRED ANY DIRECT EXPENDITURE FOR EARNING THE EXEMPT INCOME. THIS FINDING OF LD.CIT(A) HAS NOT BEEN CONTROVERTED BY THE REVENUE BY PLACING ANY MATERIAL CONTRARY. THEREFORE, WE NO RE ASON TO INTERFERE WITH ITA NO.952 /AHD /2011 ACIT VS. M/S.TRANSFORMERS & RECTIFIERS (INDIA) LT D. ASST.YEAR 2007-08 - 9 - THE ORDER OF THE LD.CIT(A) ON THIS ISSUE, SAME IS H EREBY UPHELD. IN RESPECT OF DISALLOWANCE TO 0.5% OF VALUE OF INVEST MENTS AMOUNTING TO RS.42,423/-, THE LD.CIT-DR SUBMITTED THAT THE ORDER OF THE LD.CIT(A) IS JUSTIFIED ON THIS GROUND. WE FIND THAT THE ASSESSE E HAS NOT CHALLENGED THE FINDING OF THE LD.CIT(A) BY FILING A CROSS-OBJECTIO N, THEREFORE THIS FINDING OF LD.CIT(A) IS NOT INTERFERED. THUS, THIS GROUND REVENUES APPEAL IS PARTLY ALLOWED. 7. GROUND NO.3 IS AGAINST THE DELETION OF DISALLO WANCE OF RS.5,08,11,590/- MADE BY THE AO ON ACCOUNT OF LATE DELIVERY CHARGES DEBITED BY THE ASSESSEE. THE LD.CIT-DR SUBMITTED T HAT THE LD.CIT(A) WAS NOT JUSTIFIED IN DELETING THE DISALLOWANCE. HE SUBMITTED THAT THE AO HAS GIVEN A CLEAR FINDING THAT MANY OF THE CASES TH E INVOICES PERTAIN TO THE AYS 2004-05, 2005-06, 2006-07 AND 2007-08. HE SUBMITTED THAT THE AO HAS ALSO GIVEN A FINDING THAT THE ASSESSEE HAS N OT PRODUCED ANY EVIDENCE IN SUPPORT OF ITS CLAIM THAT THE LIABILITI ES CRYSTALLIZED IN THE YEAR UNDER CONSIDERATION. HE SUBMITTED THAT UNDER THESE FACTS, THE LD.CIT(A) WAS NOT JUSTIFIED IN DELETING THE DISALLOWANCE. 7.1. ON THE CONTRARY, THE LD.COUNSEL FOR THE ASSESS EE SUBMITTED THAT THE AO FAILED TO APPRECIATE THE FACT THAT LIABILITY OF LATE DELIVERY CHARGES HAS CRYSTALLIZED ONLY DURING THE FINANCIAL YEAR IN QUE STION AND, THEREFORE, THE AMOUNT DEBITED TO P&L ACCOUNT ARE PERTAINING TO THE CURRENT FINANCIAL YEAR. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED T HAT BEFORE THE ITA NO.952 /AHD /2011 ACIT VS. M/S.TRANSFORMERS & RECTIFIERS (INDIA) LT D. ASST.YEAR 2007-08 - 10 - LD.CIT(A) ALL THE OBJECTIONS RAISED BY THE AO WERE DULY REPLIED AND THE LD.CIT(A) WAS, AFTER CONSIDERING THE SUBMISSIONS, R IGHTLY ALLOWED THE CLAIM. HE SUBMITTED THAT IN THE BUSINESS OF THE AS SESSEE, THIS KIND OF THE CHARGES ARE PAID. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE AO DISALLOWED THE ISSUE BY OBSERVI NG AS UNDER:- A) MANY OF THE CASES THE INVOICES PERTAINS TO ASS ESSMENT YEAR 2004-05, 2005-06, 2006-07 AND EVEN 2007-08. B) CONTRACTUAL AND ACTUAL DELIVERY DATES WERE ALSO OF THOSE RESPECTIVE ASSESSMENT YEARS. C) IN CASES OF DELAYS, THE ASSESSEE WAS FULLY AWAR E OF THE CONSEQUENCES AS PER PURCHASE ORDER (PO). D) IN FEW CASES WHERE THE ASSESSEE IS SHOWN TO HAV E ATTACHED LETTERS, SUCH LETTERS A5RE FROM OTHER PARTIES AND N OT FROM THE CONTRACTUAL PARTIES. THE LOCUS STANDI OF SUCH PERS ONS IN THE ENTIRE PROCESS IS UNKNOWN. E) NO CONFIRMATIONS FROM THE CONTRACTUAL PARTIES W ERE AVAILABLE FOR THE ALLEGED SUMS OF LATE DELIVER4Y CHARGES RETA INED BY THEM. F) NO EVIDENCE WAS PRODUCED TO SHOW THAT SUCH LATE DELIVERY CHARGES HAVE BEEN CRYSTALLIZED DURING THE YEAR. 8.1. HOWEVER, THE LD.CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER:- I FIND CONSIDERABLE MERIT IN THE SUBMISSIONS MADE BY THE AR. IT IS EVIDENT THAT LATE DELIVERY CHARGES ARE INTRINSIC PA RT OF THE APPELLANTS BUSINESS AND REQUIRES TO BE PAID CONTRA CTUALLY BY THE APPELLANT TO ITS CUSTOMERS AS PER TENDER CONDITIONS , FOR THE DELAY IN ITA NO.952 /AHD /2011 ACIT VS. M/S.TRANSFORMERS & RECTIFIERS (INDIA) LT D. ASST.YEAR 2007-08 - 11 - DELIVERY OF TRANSFORMERS BEYOND THE CONTRACT DELIVE RY DATE. ON THE BASIS OF THE EVIDENCES ADDUCED BY THE APPELLANT, IT IS EVIDENT THAT THE LD CHARGES CAN BE REGARDED AS HAVING BEEN CRYST ALLIZED DURING THE YEAR UNDER REVIEW, BASED ON THE FINAL PO SITION CONVEYED BY THE MARKETING DEPARTMENT OF THE APPELLANT, AFTER TRYING TO NEGOTIATE WITH ITS CUSTOMERS. THIS IS ALSO SUPPORT ED BY WAY OF CONFIRMATIONS FROM THIRD PARTY AGENTS (INTERMEDIARI ES) THROUGH WHOM SUCH ORDERS WERE PROCURED. FURTHER, IT APPEAR S THAT IN SPITE OF THE SHORTER TIME AVAILABLE DURING THE ASSESSING PROCEEDINGS, THE APPELLANT HAS TRIED TO SUBMIT MAXIMUM POSSIBLE DATA , AND EVIDENT THAT THE A.O. HAS NOT TAKEN A PROPER COGNIZANCE OF THE INFORMATION MADE AVAILABLE BY THE APPELLANT. HENCE THE ADDITIO N OF RS.5,08,11,590 MADE BY THE AO ON THIS GROUND IS DEL ETED. 8.2 WE FIND THAT THE LD.CIT(A) HAS GIVEN A FINDING THAT THE LIABILITIES PERTAINING TO THE LATE DELIVERY CHARGES CRYSTALLIZE D DURING THE YEAR UNDER CONSIDERATION BASED ON THE FINAL POSITION CONVEYED BY THE MARKETING DEPARTMENT OF THE APPELLANT AND THE EVIDENCE ADDUCE D BY THE APPELLANT- COMPANY. ADMITTEDLY, IN THIS CASE, NO REMAND REPOR T WAS SOUGHT FOR FROM THE AO BY THE LD.CIT(A) BEFORE DELETING THE DI SALLOWANCE ON THE BASIS OF EVIDENCE ADDUCED BY THE ASSESSEE-COMPANY. THE AO HAS CATEGORICALLY GIVEN A FINDING THAT NO EVIDENCE WAS PRODUCED TO PROVE THAT SUCH LATE DELIVERY CHARGES HAVE BEEN CRYSTALLIZED D URING THE YEAR UNDER CONSIDERATION. WE FIND THAT THE LD.CIT(A) HAS ALSO NOT GIVEN ANY FINDING AS TO WHAT WERE THE TERMS OF AGREEMENT BETWEEN THE ASSESSEE AND THE CUSTOMERS. AFTER CONSIDERING THE TOTALITY OF THE F ACTS AND SUBMISSIONS MADE BY THE PARTIES, WE CANNOT APPROVE THE FINDING OF THE LD.CIT(A), THEREFORE THE ORDER OF THE LD.CIT(A) ON THIS ISSUE IS SET ASIDE AND THE ISSUE ITA NO.952 /AHD /2011 ACIT VS. M/S.TRANSFORMERS & RECTIFIERS (INDIA) LT D. ASST.YEAR 2007-08 - 12 - IS RESTORED BACK TO THE FILE OF LD.CIT(A) FOR DECIS ION AFRESH SINCE THE ORDER PASSED BY THE LD.CIT(A) IS NOT A SPEAKING ORD ER AS THE LD.CIT(A) HAS NOT GIVEN ANY FINDING AS TO WHAT WERE THE EVIDE NCES WHICH WERE BEFORE HIM FOR ARRIVING AT THE CONCLUSION THAT THE ASSESSEE HAS PAID LATE DELIVERY CHARGES IN TERMS OF THE CONTRACTUAL TERMS AND THE LIABILITY CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION. IN THE ABSENCE OF SUCH FINDING, WE CANNOT CONFIRM THE FINDING OF THE LD.CI T(A). THUS, THIS GROUND OF REVENUES APPEAL IS ALLOWED FOR STATISTIC AL PURPOSES. 9. GROUND NO.4 IS AGAINST THE DELETION OF DISA LLOWANCE OF EXPENDITURE OF RS.30,73,341/- COVERED U/S.40A(2)(A) OF THE ACT. THE LD.CIT-DR SUBMITTED THAT THE LD.CIT(A) WAS NOT JUSTIFIED IN D ELETING THE DISALLOWANCE. HE SUBMITTED THAT THE ASSESSEE COULD NOT EXPLAIN AS TO HOW THE PROPRIETARY-CONCERN OF THE CHAIRMAN OF THE ASSE SSEE-COMPANY PURCHASED UNFINISHED GOODS FROM SUCH CONCERN. HE S UBMITTED THAT THE ENTIRE TRANSACTIONS ARE DESIGNED TO BENEFIT TO THE PROPRIETARY-CONCERN. 9.1. ON THE CONTRARY, THE LD.COUNSEL FOR THE ASSESS EE SUBMITTED THAT THE AO HAS NOT POINTED OUT AS TO HOW THE PAYMENTS MADE TO THE CHAIRMANS CONCERN ARE NOT REASONABLE. HE SUBMITTED THAT THE AO SHOULD HAVE GIVEN A FINDING BY COMPARING THE PAYMENTS MADE TO THE OTH ER CONCERNS AND TO THE CONCERN OF THE CHAIRMAN BEFORE INVOKING THE SEC TION 40A(2)(A) OF THE ACT. HE SUBMITTED THAT EVEN THE AO HAS NOT GIVEN A NY FINDING TO THE FAR ITA NO.952 /AHD /2011 ACIT VS. M/S.TRANSFORMERS & RECTIFIERS (INDIA) LT D. ASST.YEAR 2007-08 - 13 - MARKET VALUE OF THE ARTICLES PURCHASED FROM THE CHA IRMANS CONCERN. HE FURTHER SUBMITTED THAT SUCH DISALLOWANCE CANNOT BE MADE ON THE BASIS OF WHIMS AND FANCIES OF THE AO. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUS ED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE LD.CIT(A) IN PARA 9.2.1 OF HIS ORD ER HAS DECIDED THIS ISSUE BY OBSERVING AS UNDER:- 9.2.1 I HAVE CAREFULLY CONSIDERED THE BASIS O F MAKING THE ABOVE ADDITION ON ACCOUNT OF PURCHASES MADE FROM THE PROP RIETORSHIP FIRM M/S.TRANSFORMERS AND RECTIFIERS (INDIA) U/S.40 A(2)(B) OF THE ACT BY THE AO, AND THE SUBMISSIONS/ARGUMENTS PUT FO RTH BY THE LEARNED AR/APPELLANT. THE FACT THAT THE RUNNING BUSINESS OF THE SAID PROP RIETORSHIP CONCERN HAS BEEN TAKEN OVER W.E.F. 01.08.2006 AT THE BOOK V ALUES OF THE ASSETS AND LIABILITIES OF THE CONCERN IS NOT DISPUTED. AG AIN, AS EXPLAINED BY THE AR ONLY FOR THE VALUATION PURPOSES, THE VALUE HAVE BEEN CONSIDERED AS PER THE AUDITED BALANCE SHEET OF THE CONCERN AS AT 31.03.2006; FURTHER, THE SHARE VALUATION OF THE ACQUIRER APPELL ANT COMPANY, WHOSE SHARES HAVE BEEN ISSUED TO THE VENDOR (PROPRIETOR O F THE TRANSFEROR FIRM) HAS ALSO BEEN CARRIED OUT BASED ON BALANCE SHEET AS AT 31.03.2006. I DO NOT FIND ANYTHING OBJECTIONABLE TO THIS, IT BEIN G A COMMERCIAL MATTER BETWEEN THE PARTIES. THERE IS ALSO REASONABLE MERI T IN THE SUBMISSIONS BY THE AR, ESTABLISHING THAT IN GENERAL, THE MARGIN S OF TRANSFORMERS INDUSTRY PLAYERS HAVE IMPROVED DURING FISCAL YEAR 2 004-05 AND ALSO FISCAL YEAR 2005-06. THUS, THE GP MARGIN OF THE FI RM FOR FY 04-05 WAS 18.71% AND ALSO DURING THE PERIOD FROM APRIL-JULY, 2006 IT WAS 18.80%. ON A MATCHING BASIS THE GP MARGINS EARNED BY THE APPELLANT COMPANY HAVE ALSO SHOWN INCREASING TREND, AS THEY I MPROVED FROM 15.69% IN FY 2003-04 TO 18.95% IN FY 2005-06. FURTHER, THE GP MARGIN EARNED BY THE FIRM IN CASE O F THIRD PARTY SALES (UNRELATED PARTIES) IN THE PERIOD FROM APRIL-JULY 2 006 IS 18.65% - I.E. ITA NO.952 /AHD /2011 ACIT VS. M/S.TRANSFORMERS & RECTIFIERS (INDIA) LT D. ASST.YEAR 2007-08 - 14 - WITHIN COMPARABLE RANGE VIS--VIS THE OVERALL GP MA RGIN EARNED BY THE FIRM IN THE SAME PERIOD. BY INFERENCE, IT CAN BE C ONCLUDED THAT FOR RELATED PARTY SALES ALSO, THE FIRM WOULD HAVE EARNE D SIMILAR MARGIN. THE APPELLANT HAS ALSO EXPLAINED BY WAY OF WRITTEN SUBMISSIONS TO THE AO THE COMMERCIAL EXPEDIENCY FOR WHICH IT WAS INCUM BENT ON PART OF THE FIRM TO TRANSFER LARGE POSITION OF THE SEMI-FIN ISHED GOODS TO THE APPELLANT COMPANY PRIOR TO THE TAKEOVER DATE. IN VIEW OF THE ABOVE, THE ADDITION OF RS.30,73,341/ - MADE BY THE AO U/S.40(A)(2)(B) IS DELETED. 10.1. THE ABOVE FINDING ON FACT IS NOT CONTROVERTED BY THE REVENUE BY PLACING ANY MATERIAL CONTRARY. THEREFORE, WE DO NO T FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A), SAME IS UPHELD. THUS, GROUND RAISED BY THE REVENUE IS REJECTED. 11. GROUND NOS.5 & 6 ARE GENERAL IN NATURE REQUIRE NO INDEPENDENT ADJUDICATION. 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON FRIDAY,, THE 23 RD DAY OF JANUARY, 2015 AT AHMEDABAD. SD/- SD/- ( .. ) ( ) ( N.S. SAINI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 23 / 01 /2015 2*..,(.../ T.C. NAIR, SR. PS ITA NO.952 /AHD /2011 ACIT VS. M/S.TRANSFORMERS & RECTIFIERS (INDIA) LT D. ASST.YEAR 2007-08 - 15 - '#$%&'&$ / COPY OF THE ORDER FORWARDED TO : 1. # / THE APPELLANT 2. $% # / THE RESPONDENT. 3. 345 6 / CONCERNED CIT 4. 6 ( ) / THE CIT(A)-XIV, AHMEDABAD 5. 7(8$45 , *45. , 3 / DR, ITAT, AHMEDABAD 6. 8:;<) / GUARD FILE. / BY ORDER, %7$ //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 1&20.1.15 (DICTATION-PAD 30- PAGES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER .. 9/15/20.1.15 3. OTHER MEMBER... 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.23.1.15 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 23.1.15 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER