CIRCULAR/ INSTRUCTION
it17cir23
No TDS on GST; CBDT clarifies TDS to be deducted on sum without including GST
F.No.225/251/2017/ITA.II
Revision of orders under section(s) 263/264 of the IT Act
CASE LAWS
2017-TIOL-1044-ITAT-MUM
BALKRISHNA INDUSTRIES LTD VS ADDL.CIT: MUMBAI ITAT (DATED: April 26, 2017)
Income Tax - Sections 2(22)(e) & 143(3).
Keywords - Addition of valuation of closing stock - Change in method - Deemed dividend - Inter Corporate Deposits.
The assessee has been a Company. The AO noticed from the audit report of the assessee that it had received loan from its subsidiary. The AO noted that the said loan was in the nature of unsecured loan.Therefore, according to AO, the provisions of section 2(22)(e) of the Act was clearly attracted. The assessee replied that this loan was Inter Corporate Deposits (ICD) and Inter Cooperate Deposits were different for loans and advances and would not come within the purview of deemed dividend under section 2(22) (e) of the Act. But the AO noted that these were not Inter Corporate Deposits and assessee’s case falls clearly under the provisions of deemed dividend.
The AO during the course of assessment proceedings noticed that the assessee company has changed its method of accounting during the year.The AO was of the view that the new method adopted by the assessee is inconsistent with FIFO method of accounting and the method of valuation of closing stock regularly followed by the assessee till now. According to him, the valuation has been done by choosing the timings when the assessee has effected demerger of its undertaking and received substantial income by way of slump sale from the demerged units and reduce the profits. It has changed the method, the AO added back the lowering of value of the closing stock of Rs. 6,17,59,737/-.
On appeal, Tribunal held that,
Whether deeming provision of dividend u/s 2(22)(e) would apply for inter corporate deposit/loan - NO: ITAT
++ we find from the above provisions of the Companies Act 1956, the amended provisions, that the assessee taken inter corporate deposit from its subsidiary named Balkrishna Paper Mills Ltd and AO assessed the same as deemed dividend under section 2(22) (e) of the Act. In view of the amended provisions of Companies Act 1956, the assessee being a Public Ltd. Company has taken loan from a subsidiary which is also a public Ltd. Company, by virtue of the amended provisions and therefore, the assessee falls within the provisions of section 2(18) read with relevant provisions of the Companies Act and hence, there is no dispute that the provisions of section 2(22)(e) of the Act will not attract to the present case of the assessee;
Whether addition due to change in method of accounting, is justified, when assessee has followed a bonafide system of accounting - YES: ITAT
++ the AO treated the change in method of closing stock as tool to offset its increased tax liability on account of demerger of its undertakings. Apart from this bald statement the AO or CIT(A) could not brought on record any evidence that this change in method of accounting from FIFO to the weighted average cost method will in any way offset its increased tax liability. It was noted that neither the AO nor CIT(A) could make out any factual bases for not accepting the weighted average cost method adopted by the assessee as malafide and not bonafide The assessee has filed complete details of valuation on the basis of new EPR system which has resulted in lower value of closing stock and this has not given any effect because as and when the finished goods were sold and raw material/ WIP (inputs) were consumed in subsequent year was neutralize by the same. We find that the assessee has followed a bonafide system of accounting and once the system is bonafide no interference can be done by Revenue in the valuation of stock. Since none of the authorities below have doubted the bonafide of the assessee in regard to change in method of valuation of closing stock it was decided to delete the addition.
Assessee's appeal partially allowed
2017-TIOL-1043-ITAT-KOL
BHARGAB ENGINEERING WORKS VS DCIT: KOLKATA ITAT (DATED: June 2, 2017)
Income Tax - Sections 44AD, 44AF & 133A.
Keywords - Books of Accounts - Estimation of Income - Survey
The assessee is a partnership firm engaged in the business of manufacturing of tea blending machine and equipments, apart from earning income by way of labour charges, crane hire charges etc. There was a survey conducted in the business premises of the assessee and the survey team observed from the manufacturing and trading account for the period 1.4.2010 to 18.1.2011 (pre-survey period), the gross profit declared therein as per the books was 5.96% of turnover. The AO later observed from the manufacturing and trading account for the entire period that the gross profit declared by the assessee was at 19.46%. He further observed that the assessee had shown gross profit for post-survey period at 105.19%. The AO observed that the G.P. shown in the pre-survey period at 5.96% was unreasonably low, considering the G.P. rate shown in the post-survey period at 105.19%. The AO further observed that the assessee had a manufacturing of engineering goods of various sizes and various natures for which the exact percentage of yield had not been furnished. Based on these observations, he concluded that the assessee’s accounts for pre-survey as well as post-survey periods are not satisfactorily found as ‘correct’ and ‘complete’. Accordingly he estimated the gross profit for the pre-survey period at 15% of turnover of pre-survey period and made an addition thereon.
On appeal, Tribunal held that,
Whether no addition can be made merely based on the statement given during survey, without bringing any corroborative evidence on record - YES : ITAT
Whether book results can be rejected and estimation of profits can be made, when AO as well as CIT (A) brought on record several defects in the books - YES: ITAT
++ the CIT(A) having given a categorical finding that the AO, having found lot of defects in the books of accounts on several counts ; having stated that the calculation of profits made by the AO is absurd and arbitrary ; having rejected the book results of the assessee for various reasons, ought to have resorted to estimation of net profit on presumptive basis though strictly the percentage of profits prescribed thereon u/s 44AD / 44AF of the Act cannot be made applicable to the facts of the instant case in view of higher turnover. However, it is already well settled that the percentage of profits prescribed in the said sections would be an indicator for estimation of reasonable profits of the assessee in the event of book results not reliable. The past history of the assessee also would be a good indicator of performance of the assessee, but in the instant case, the details of the same are not available on record. But during the year under appeal, the assessment was framed based on the survey conducted by the department and disclosure given by the assessee at the time of survey that its income for the year under appeal could be estimated at Rs 85 lacs and tax thereon to the tune of Rs 25.5 lacs would be paid in due course. It has been well settled that no addition could be made merely based on the statement given during survey without bringing any corroborative evidence on record;
++ it was noted that both the AO as well as CITA had brought on record several defects in the books and details produced by the assessee and had resorted to ignore the book results and resorted to estimate of profits in different ways. In the instant case, the only way for determining the total income of the assessee would be by resorting to estimation of net profits. Hence it was held that the net profits should be estimated as a percentage of total turnover taking into account all the defects in the books during pre-survey and post –survey period. Estimation of net profits (before partners remuneration) at 8% of total turnover would meet the ends of justice in the facts and circumstances of the instant case. The AO was directed the allow deduction of partners remuneration of Rs 31.40 lacs from the net profit so determined above at 8% on total turnover of Rs 1058.91 lacs.
Assessee's appeal partly allowed
